SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 26, 2003
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-19681
JOHN B. SANFILIPPO & SON, INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 36-2419677
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
2299 Busse Road
Elk Grove Village, Illinois 60007
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(Address of Principal Executive Offices, Zip Code)
Registrant's telephone number, including area code: (847) 593-2300
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
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(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X].
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2). Yes [ ] No [X].
The aggregate market value of the voting Common Stock held by non-
affiliates was $50,142,971 as of December 26, 2002 (5,111,414 shares at
$9.81 per share).
As of September 2, 2003, 5,777,764 shares of the Company's Common
Stock, $.01 par value ("Common Stock"), including 117,900 treasury
shares, and 3,667,426 shares of the Company's Class A Common Stock, $.01
par value ("Class A Stock"), were outstanding.
Documents Incorporated by Reference:
- ------------------------------------
Portions of the Company's definitive Proxy Statement for its Annual
Meeting of Stockholders to be held October 29, 2003 are incorporated by
reference into Part III of this Report.
PART I
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Item 1 -- Business
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a. General Development of Business
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(i) Background
-----------------
John B. Sanfilippo & Son, Inc. (the "Company" or "JBSS") was
incorporated under the laws of the State of Delaware in 1979 as
the successor by merger to an Illinois corporation that was
incorporated in 1959. As used herein, unless the context
otherwise indicates, the terms "Company" or "JBSS" refer
collectively to John B. Sanfilippo & Son, Inc. and its wholly
owned subsidiary, JBS International, Inc. References herein to
fiscal 2003 are to the fiscal year ended June 26, 2003.
References herein to fiscal 2002 are to the fiscal year ended June
27, 2002. References herein to fiscal 2001 are to the fiscal year
ended June 28, 2001.
The Company is a processor, packager, marketer and distributor of
shelled and inshell nuts. These nuts are sold under a variety of
private labels and under the Company's Fisher, Evon's, Flavor
Tree, Sunshine Country, Texas Pride and Tom Scott brand names.
The Company also markets and distributes, and in most cases
manufactures or processes, a diverse product line of food and
snack items, including peanut butter, candy and confections,
natural snacks and trail mixes, sunflower seeds, corn snacks,
sesame sticks and other sesame snack products.
The Company's headquarters and executive offices are located at
2299 Busse Road, Elk Grove Village, Illinois 60007, and its
telephone number for investor relations is (847) 593-2300,
extension 6612.
b. Narrative Description of Business
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(i) General
--------------
As stated above, the Company is a processor, packager, marketer
and distributor of shelled and inshell nuts. The Company also
markets and distributes, and, in most cases manufactures or
processes, a diverse product line of food and snack items
including peanut butter, candy and confections, natural snacks and
trail mixes, sunflower seeds, corn snacks, sesame sticks and other
sesame snack products.
(ii) Principal Products
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(A) Raw and Processed Nuts
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The Company's principal products are raw and processed nuts. These
products accounted for approximately 88.6%, 87.1% and 87.5% of the
Company's gross sales for fiscal 2003, fiscal 2002 and fiscal
2001, respectively. The nut product line includes peanuts,
almonds, Brazil nuts, pecans, pistachios, filberts, cashews,
English walnuts, black walnuts, pine nuts and macadamia nuts. The
Company's nut products are sold in numerous package styles and
sizes, from poly-cellophane packages, composite cans, vacuum
packed tins, plastic jars and glass jars for retail sales, to
large cases and sacks for bulk sales to industrial, food service
and government customers. In addition, the Company offers its nut
products in a variety of different styles and seasonings,
including natural (with skins), blanched (without skins), oil
roasted, dry roasted, unsalted, honey roasted, butter toffee,
praline and cinnamon toasted. The Company sells its products
domestically to retailers and wholesalers as well as to
industrial, food service and government customers. The Company
also sells certain of its products to foreign customers in the
retail, food service and industrial markets.
2
The Company acquires a substantial portion of its peanut, pecan,
almond and walnut requirements directly from domestic growers.
The balance of the Company's raw nut supply is purchased from
importers and domestic processors. In fiscal 2003, the majority
of the Company's peanuts, pecans and walnuts were shelled at the
Company's four shelling facilities, and the remaining portion was
purchased shelled from processors and growers. See "Raw Materials
and Supplies" and Item 2 -- "Properties -- Manufacturing
Capability, Technology and Engineering" below.
(B) Peanut Butter
-------------------
The Company manufactures and markets peanut butter in several
sizes and varieties, including creamy, crunchy and natural.
Peanut butter accounted for approximately 4.0%, 4.0% and 3.7% of
the Company's gross sales for fiscal 2003, fiscal 2002 and fiscal
2001, respectively.
(C) Candy and Confections
---------------------------
The Company markets and distributes a wide assortment of candy and
confections, including such items as wrapped hard candy, gummies,
ju-ju's, brand name candies, chocolate peanut butter cups, peanut
clusters, pecan patties and sugarless candies. Candy and
confections accounted for approximately 1.7%, 2.6% and 2.9% of the
Company's gross sales for fiscal 2003, fiscal 2002 and fiscal
2001, respectively. Most of these products are purchased from
various candy manufacturers and sold to retailers in bulk or
retail packages under private labels or the Evon's brand.
(D) Other Products
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The Company also markets and distributes, and in many cases
processes and manufactures, a wide assortment of other food and
snack products. These products accounted for approximately 5.7%,
6.3% and 5.9% of the Company's gross sales for fiscal 2003, fiscal
2002 and fiscal 2001, respectively. These other products include:
natural snacks, trail mixes and chocolate and yogurt coated
products sold to retailers and wholesalers; baking ingredients
(including chocolate chips, peanut butter chips, flaked coconut
and chopped, diced, crushed and sliced nuts) sold to retailers,
wholesalers, industrial and food service customers; bulk food
products sold to retail and food service customers; an assortment
of corn snacks, sunflower seeds, party mixes, sesame sticks and
other sesame snack products sold to retail supermarkets, vending
companies, mass merchandisers and industrial customers; and a wide
variety of toppings for ice cream and yogurt sold to food service
customers.
(iii) Customers
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The Company sells products to approximately 3,500 retail,
industrial, government and food service customers on a national
level. Retailers of the Company's products include grocery
chains, mass merchandisers and membership clubs. The Company
markets many of its products directly to approximately 600 retail
stores in Illinois and eight other states through its store-door
delivery system discussed below. Wholesale grocery companies
purchase products from the Company for resale to regional retail
grocery chains and convenience stores.
The Company's industrial customers include bakeries, ice cream and
candy manufacturers and other food and snack processors. Food
service customers include hospitals, schools, universities,
airlines, retail and wholesale restaurant businesses and national
food service franchises. In addition, the Company packages and
distributes products manufactured or processed by others. Sales to
Wal-Mart Stores, Inc. accounted for approximately 17% and 16% of
the Company's net sales for fiscal 2003 and fiscal 2002,
respectively. No single customer accounted for more than 10% of
the Company's net sales for fiscal 2001.
3
(iv) Sales, Marketing and Distribution
----------------------------------------
The Company markets its products through its own sales department
and through a network of over 200 independent brokers and various
independent distributors and suppliers. The Company's sales
department of 58 employees includes 20 regional managers, 4 sales
specialists and 4 telemarketers.
The Company's marketing and promotional campaigns include regional
and national trade shows and limited newspaper advertisements,
including coupons, done from time to time in cooperation with
certain of the Company's retail customers. These programs were
designed to bring new users and to increase consumption in the
snack and baking nut categories. The Company also designs and
manufactures point of purchase displays and bulk food dispensers
for use by certain of its retail customers. These displays, and
other shelving and pegboard displays purchased by the Company, are
installed by Company personnel. The Company believes that
controlling the type, style and format of display fixtures
benefits the customer and ultimately the Company by presenting the
Company's products in a consistent, attractive point of sale
presentation. During fiscal 2003, the Company increased its
promotion of the Fisher brand in the Chicago area through an
integrated marketing campaign using multiple media outlets.
The Company distributes its products from its Illinois, Georgia,
California, North Carolina and Texas production facilities and
from public warehouse and distribution facilities located in
various other states. The majority of the Company's products are
shipped from the Company's production, warehouse and distribution
facilities by contract and common carriers.
JBSS distributes its products to approximately 600 convenience
stores, supermarkets and other retail customer locations through
its store-door delivery system. Under this system, JBSS uses its
own fleet of step-vans to market and distribute nuts, snacks and
candy directly to retail customers on a store-by-store basis.
Presently, the store-door delivery system consists of 22 route
salespeople covering routes located in Illinois and other
Midwestern states. District and regional route managers, as well
as sales and marketing personnel operating out of JBSS's corporate
offices, are responsible for monitoring and managing the route
salespeople.
In the Chicago area, JBSS operates thrift stores at two of its
production facilities and at four other retail stores. These
stores sell bulk foods and other products produced by JBSS and by
other vendors.
(v) Competition
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Snack food markets are highly competitive. The Company's nuts and
other snack food products compete against products manufactured
and sold by numerous other companies in the snack food industry,
some of which are substantially larger and have greater resources
than the Company. In the nut industry, the Company competes with,
among others, Planters, Ralcorp Holdings, Inc. and numerous
regional snack food processors. Competitive factors in the
Company's markets include price, product quality, customer
service, breadth of product line, brand name awareness, method of
distribution and sales promotion. See "Forward Looking Statements
- -- Factors That May Affect Future Results -- Competitive
Environment" below.
(vi) Raw Materials and Supplies
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The Company purchases nuts from domestic and foreign sources.
Most of the Company's peanuts are purchased from the southeastern
United States and most of its walnuts and almonds are purchased
from California. The Company purchases most of its pecans from
the southern United States and Mexico. Cashew nuts are imported
from India, Africa, Brazil and Southeast Asia. The availability
of nuts is subject to market conditions and crop size fluctuations
caused by weather conditions, plant diseases and other factors
beyond the Company's control. These fluctuations can adversely
impact the Company's profitability. For fiscal 2003,
approximately 35% of the Company's nut purchases were from foreign
sources.
4
The Company generally purchases and shells peanuts, pecans and
walnuts rather than buying shelled nuts from shellers. Due, in
part, to the seasonal nature of the industry, the Company
maintains significant inventories of peanuts, pecans, walnuts and
almonds at certain times of the year, especially in the second and
third quarters of the Company's fiscal year. Fluctuations in the
market price of peanuts, pecans, walnuts, almonds and other nuts
may affect the value of the Company's inventory and thus the
Company's gross profit and gross profit margin. See "General",
"Fiscal 2003 Compared to Fiscal 2002 -- Gross Profit" and "Fiscal
2002 Compared to Fiscal 2001 -- Gross Profit" under Item 7 --
"Management's Discussion and Analysis of Financial Condition and
Results of Operations".
The Company purchases supplies, such as roasting oils, seasonings,
glass jars, plastic jars, labels, composite cans and other
packaging materials from third parties. The Company sponsors a
seed exchange program under which it provides peanut seed to
growers in return for a commitment to repay the dollar value of
that seed, plus interest, in the form of farmer stock (i.e.,
peanuts at harvest). Approximately 80% of the farmer stock
peanuts purchased by the Company in fiscal 2003 were grown from
seed provided by the Company. The Company also contracts for the
growing of a limited number of generations of peanut seeds to
increase seed quality and maintain desired genetic characteristics
of the peanut seed used in processing.
The availability and cost of raw materials for the production of
the Company's products, including peanuts, pecans, walnuts,
almonds, other nuts, dried fruit, coconut and chocolate, are
subject to crop size and yield fluctuations caused by factors
beyond the Company's control, such as weather conditions and plant
diseases. Additionally, the supply of edible nuts and other raw
materials used in the Company's products could be reduced upon a
determination by the USDA or any other government agency that
certain pesticides, herbicides or other chemicals used by growers
have left harmful residues on portions of the crop or that the
crop has been contaminated by aflatoxin or other agents.
(vii) Trademarks and Patents
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The Company markets its products primarily under private labels
and the Fisher, Evon's, Sunshine Country, Flavor Tree, Texas Pride
and Tom Scott brand names, which are registered as trademarks with
the U.S. Patent and Trademark Office as well as in various other
jurisdictions. The Company also owns several patents of various
durations. The Company expects to continue to renew for the
foreseeable future those trademarks that are important to the
Company's business.
(viii) Employees
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As of June 26, 2003, the Company had approximately 1,640 active
employees, including approximately 180 corporate staff employees
and 1,460 production and distribution employees. The Company's
labor requirements typically peak during the last quarter of the
calendar year, at which time temporary labor is generally used to
supplement the full-time work force.
(ix) Seasonality
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The Company's business is seasonal. Demand for peanut and other
nut products is highest during the months of October, November and
December. Peanuts, pecans, walnuts and almonds, the Company's
principal raw materials, are primarily purchased between August
and February and are processed throughout the year until the
following harvest. As a result of this seasonality, the Company's
personnel, working capital requirements and inventories peak
during the last four months of the calendar year. See Item 8 --
"Financial Statements and Supplementary Data" and Item 7 --
"Management's Discussion and Analysis of Financial Condition and
Results of Operations -- General".
5
(x) Backlog
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Because the time between order and shipment is usually less than
three weeks, the Company believes that backlog as of a particular
date is not indicative of annual sales.
(xi) 2002 Farm Bill
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The Farm Security and Rural Investment Act of 2002 (the "2002 Farm
Bill") terminated the federal peanut quota program beginning with
the 2002 crop year. The 2002 Farm Bill replaced the federal peanut
quota program with a fixed payment system through the 2007 crop
year that can be either coupled or decoupled. A coupled system is
tied to the actual amount of production, while a decoupled system
is not. The series of loans and subsidies established by the 2002
Farm Bill is similar to the systems used for other crops such as
grains and cotton. To compensate farmers for the elimination of
the peanut quota, the 2002 Farm Bill provides a buy-out at a
specified rate for each pound of peanuts that had been in that
farmer's quota under the prior program. Additionally, among other
provisions, the Secretary of Agriculture may make certain counter-
cyclical payments whenever the Secretary believes that the
effective price for peanuts is less than the target price.
The termination of the federal peanut quota program has resulted
in a decrease in the Company's cost for peanuts. Selling prices
have not been adversely affected in a material manner during
fiscal 2003, resulting in a favorable impact on the Company's
gross profit and gross profit margin. There are no assurances that
selling prices for peanuts will not be adversely affected in the
future or that the termination of the federal peanut quota program
will not have an adverse effect on the Company's business
(xii) Operating Hazards and Uninsured Risks
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The sale of food products for human consumption involves the risk
of injury to consumers as a result of product contamination or
spoilage, including the presence of foreign objects, substances,
chemicals, aflatoxin and other agents, or residues introduced
during the growing, storage, handling or transportation phases.
Although the Company maintains rigid quality control standards,
inspects its products by visual examination, metal detectors or
electronic monitors at various stages of its shelling and
processing operations for all of its nut and other food products,
permits the USDA to inspect all lots of peanuts shipped to and
from the Company's production facilities, and complies with the
Nutrition Labeling and Education Act by labeling each product that
it sells with labels that disclose the nutritional value and
content of each of the Company's products, no assurance can be
given that some nut or other food products sold by the Company may
not contain or develop harmful substances. The Company currently
maintains product liability insurance of $1 million per occurrence
and umbrella coverage of up to $50 million which management and
the Company's insurance carriers believe to be adequate.
Item 2 -- Properties
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The Company presently owns or leases seven principal production
facilities. Two of these facilities are located in Elk Grove
Village, Illinois. The first Elk Grove Village facility, the
Busse Road facility, serves as the Company's corporate
headquarters and main production facility. The other Elk Grove
Village facility is located on Arthur Avenue adjacent to the Busse
Road facility. The remaining principal production facilities are
located in Bainbridge, Georgia; Garysburg, North Carolina; Selma,
Texas; Gustine, California; and Arlington Heights, Illinois. The
Company also leases warehousing facilities in Des Plaines,
Illinois and Elk Grove Village, Illinois. The Company also
presently operates thrift stores out of the Busse Road facility
and the Des Plaines facility, and owns one retail store and leases
three additional retail stores in various Chicago suburbs. In
addition, the Company leases space in public warehouse facilities
in various states.
The Company believes that its facilities are generally well
maintained and in good operating condition.
6
a. Principal Facilities
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The following table provides certain information regarding the
Company's principal facilities:
Date
Company
Constructed,
Type Acquired or
Square of Description of First
Location Footage Interest Principal Use Occupied
- ------------------------------ ------- -------- ------------------ ------------
Elk Grove Village, Illinois(1) 300,000 Leased/ Processing, 1981
(Busse Road facility) Owned packaging,
warehousing,
distribution, JBSS
corporate offices
and thrift store
Elk Grove Village, Illinois 83,000 Owned Processing, 1989
(Arthur Avenue facility) packaging,
warehousing and
distribution
Des Plaines, Illinois(2) 68,000 Leased Warehousing and 1974
thrift store
Bainbridge, Georgia(3) 245,000 Owned Peanut shelling, 1987
purchasing,
processing,
packaging,
warehousing and
distribution
Garysburg, North Carolina 160,000 Owned Peanut shelling, 1994
purchasing,
processing,
packaging,
warehousing and
distribution
Selma, Texas 265,000 Owned Pecan shelling, 1992
processing,
packaging,
warehousing and
distribution
Gustine, California 215,000 Owned Walnut shelling, 1993
processing,
packaging,
warehousing and
distribution
Arlington Heights, Illinois(4) 83,000 Owned Processing, 1994
packaging,
warehousing and
distribution
Elk Grove Village, Illinois(5) 230,000 Leased Warehousing and 2003
(2400 Arthur facility) distribution
7
(1) Approximately 240,000 square feet of the Busse Road
facility is leased from the Busse Land Trust under a lease that
expires on May 31, 2015. Under the terms of the lease, the
Company has a right of first refusal and a right of first offer
with respect to this portion of the Busse Road facility. The
remaining 60,000 square feet of space at the Busse Road facility
(the "Addition") was constructed by the Company in 1994 on
property owned by the Busse Land Trust and on property owned by
the Company. Accordingly, (i) the Company and the Busse Land
Trust entered into a ground lease with a term beginning January
1, 1995 pursuant to which the Company leases from the Busse Land
Trust the land on which a portion of the Addition is situated
(the "Busse Addition Property"), and (ii) the Company, the Busse
Land Trust and the sole beneficiary of the Busse Land Trust
entered into a party wall agreement effective as of January 1,
1995, which sets forth the respective rights and obligations of
the Company and the Busse Land Trust with respect to the common
wall which separates the existing Busse Road facility and the
Addition. The ground lease has a term that expires on May 31,
2015 (the same date on which the Company's lease for the Busse
Road facility expires). The Company has an option to extend the
term of the ground lease for one five-year term, an option to
purchase the Busse Addition Property at its then appraised fair
market value at any time during the term of the ground lease,
and a right of first refusal with respect to the Busse Addition
Property. See "Compensation Committee Interlocks, Insider
Participation and Certain Transactions -- Lease Arrangements"
contained in the Company's Proxy Statement for the 2003 Annual
Meeting.
(2) The Des Plaines facility is leased under a lease that
expires on October 31, 2010. The Des Plaines facility is also
subject to a mortgage securing a loan from an unrelated third
party lender to the related party lessor in the original
principal amount of approximately $1.6 million. The rights of
the Company under the lease are subject and subordinate to the
rights of the lender. Accordingly, a default by the lessor under
the loan could result in foreclosure on the facility and thereby
adversely affect the Company's leasehold interest. See
"Compensation Committee Interlocks, Insider Participation and
Certain Transactions -- Lease Arrangements" contained in the
Company's Proxy Statement for the 2003 Annual Meeting.
(3) The Bainbridge facility is subject to a mortgage and deed of
trust securing $6.75 million (excluding accrued and unpaid
interest) in industrial development bonds. See Item 7 --
"Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources".
(4) The Arlington Heights facility is subject to a mortgage
dated September 27, 1995 securing a loan of $2.5 million with a
maturity date of October 1, 2015.
(5) The 2400 Arthur facility is leased under a lease that expires
on March 31, 2008.
b. Manufacturing Capability, Utilization, Technology and Engineering
- --------------------------------------------------------------------
The Company's principal production facilities are equipped with
modern processing and packaging machinery and equipment. The
physical structure and the layout of the production line at the
Busse Road facility were designed so that peanuts and other nuts
can be processed, jarred and packed in cases for distribution on a
completely automated basis. The facility also has production
lines for chocolate chips, candies, peanut butter and other
products processed or packaged by the Company. This processing
facility is well utilized.
The Selma facility contains the Company's automated pecan shelling
and bulk packaging operation. The facility's pecan shelling
production lines currently have the capacity to shell in excess of
65 million inshell pounds of pecans annually. For fiscal 2003, the
Company processed approximately 64 million inshell pounds of
pecans at the Selma, Texas facility. The Selma facility is well
utilized.
The Bainbridge facility is located in the largest peanut producing
region in the United States. This facility takes direct delivery
of farmer stock peanuts and cleans, shells, sizes, inspects,
blanches, roasts and packages them for sale to the Company's
customers. The production line at the Bainbridge facility is
almost entirely automated and has the capacity to shell approximately
8
120 million inshell pounds of peanuts annually. During fiscal 2003,
the Bainbridge facility shelled approximately 84 million inshell pounds
of peanuts.
The Garysburg facility has the capacity to process approximately
70 million inshell pounds of farmer stock peanuts annually. For
fiscal 2003, the Garysburg facility processed approximately 15
million pounds of inshell peanuts.
The Gustine facility is used for walnut shelling, walnut and
almond processing and marketing operations. This facility has the
capacity to shell approximately 50 million inshell pounds of
walnuts annually. For fiscal 2003, the Gustine facility shelled
approximately 42 million inshell pounds of walnuts. The Gustine
facility has the capacity to process in excess of 70 million
pounds of almonds annually. For fiscal 2003, the Gustine facility
processed approximately 25 million pounds of almonds.
The Arlington Heights facility is used for the production and
packaging the majority of the Company's Fisher Nut products, the
"stand-up pouch" packaging for its Flavor Tree brand products and
for the production and packaging of the Company's sunflower meats.
The Arlington Heights facility is well utilized.
The Company is currently exploring the possible consolidation of
certain of its facilities into a single location through the
construction of a new production facility. See Item 7 --
"Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Capital Expenditures and -- Capital
Resources".
Item 3 -- Legal Proceedings
- ---------------------------
On June 17, 2003, the Company received a subpoena for the
production of documents and records from the Antitrust Division of
the U.S. Department of Justice in connection with an antitrust
investigation of the peanut shelling industry. The Company expects
to cooperate fully in the investigation. There can be no
assurances as to the impact of the investigation on the peanut
shelling industry or that the investigation will not have a
material adverse effect on the Company.
The Company is party to various lawsuits, proceedings and other
matters arising out of the conduct of its business. Currently, it
is management's opinion that the ultimate resolution of these
matters will not have a material adverse effect upon the business,
financial condition or results of operations of the Company.
Item 4 -- Submission of Matters to a Vote of Security Holders
- -------------------------------------------------------------
No matter was submitted during the fourth quarter of fiscal 2003
to a vote of security holders, through solicitation of proxies or
otherwise.
EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G (3) of Form 10-K and Instruction
3 to Item 401(b) of Regulation S-K, the following information is
included as an unnumbered item in Part I of this Report in lieu of
being included in the Proxy Statement for the Company's annual
meeting of stockholders to be held on October 29, 2003:
JASPER B. SANFILIPPO, CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE
OFFICER, age 72 -- Mr. Sanfilippo has been employed by the Company
since 1953. Mr. Sanfilippo served as the Company's President from
1982 to December 1995 and was the Company's Treasurer from 1959 to
October 1991. He became the Company's Chairman of the Board and
Chief Executive Officer in October 1991 and has been a member of
the Company's Board of Directors since 1959. Mr. Sanfilippo is
also a member of the Company's Compensation Committee and was a
member of the Stock Option Committee until February 27, 1997 (when
that Committee was disbanded).
9
MATHIAS A. VALENTINE, PRESIDENT, age 70 -- Mr. Valentine has been
employed by the Company since 1960 and was named its President in
December 1995. He served as the Company's Secretary from 1969 to
December 1995, as its Executive Vice President from 1987 to
October 1991 and as its Senior Executive Vice President and
Treasurer from October 1991 to December 1995. He has been a member
of the Company's Board of Directors since 1969. Mr. Valentine is
also a member of the Company's Compensation Committee and was a
member of the Stock Option Committee until February 27, 1997 (when
that Committee was disbanded).
MICHAEL J. VALENTINE, EXECUTIVE VICE PRESIDENT FINANCE, CHIEF
FINANCIAL OFFICER AND SECRETARY, age 44 -- Mr. Valentine has been
employed by the Company since 1987 and in January 2001 was named
its Executive Vice President Finance, Chief Financial Officer and
Secretary. Mr. Valentine served as the Company's Senior Vice
President and Secretary from August 1999 to January 2001. Mr.
Valentine was elected as a director of the Company in April 1997.
Mr. Valentine served as the Company's Vice President and
Secretary from December 1995 to August 1999. He served as an
Assistant Secretary and the General Manager of External Operations
for the Company from June 1987 and 1990, respectively, to December
1995. Mr. Valentine's responsibilities also include the Company's
peanut operations, including sales and procurement.
JEFFREY T. SANFILIPPO, EXECUTIVE VICE PRESIDENT SALES AND
MARKETING, age 40 -- Mr. Sanfilippo has been employed by the
Company since 1991 and in January 2001 was named its Executive
Vice President Sales and Marketing. Mr. Sanfilippo served as the
Company's Senior Vice President Sales and Marketing from August
1999 to January 2001. Mr. Sanfilippo was named as a director of
the Company in August 1999. He served as General Manager West
Coast Operations from September 1991 to September 1993. He served
as Vice President West Coast Operations and Sales from October
1993 to September 1995. He served as Vice President Sales and
Marketing from October 1995 to August 1999.
JASPER B. SANFILIPPO, JR., EXECUTIVE VICE PRESIDENT OF OPERATIONS
AND ASSISTANT SECRETARY, age 35 -- Mr. Sanfilippo has been
employed by the Company since 1991 and in August 2001 was named
Executive Vice President of Operations and Assistant Secretary.
He has served as an Assistant Secretary of the Company since 1993.
Mr. Sanfilippo served as a Senior Vice President from August
1999 to August 2001. Mr. Sanfilippo served as a Vice President
from December 1995 to August 1999. He served as General Manager of
the Walnut Processing Division from 1993 to December 1995. Mr.
Sanfilippo is responsible for the Company's non-peanut shelling
operations, including plant operations and procurement.
JAMES A. VALENTINE, EXECUTIVE VICE PRESIDENT INFORMATION
TECHNOLOGY, age 39 -- Mr. Valentine has been employed by the
Company since 1986 and in August 2001 was named Executive Vice
President Information Technology. Mr. Valentine served as Senior
Vice President Information Technology from January 2000 to August
2001.
JAMES M. BARKER, SENIOR VICE PRESIDENT SALES AND MARKETING, age 38
- -- Mr. Barker has been employed by the Company since 1996 and in
March 2001 was named Senior Vice President Sales and Marketing.
He served as Vice President of Sales and Marketing from December
1998 to March 2001, Vice President of Marketing from December 1996
to December 1998 and Director of Marketing from January 1996 to
December 1996.
WILLIAM R. POKRAJAC, VICE PRESIDENT OF FINANCE, age 49 -- Mr.
Pokrajac has been with the Company since 1985 and was named Vice
President of Finance and Controller in August 2001. He served as
the Company's Controller from 1987 to August 2003. Mr. Pokrajac is
responsible for the Company's accounting and inventory control
functions.
WALTER R. TANKERSLEY, JR., SENIOR VICE PRESIDENT INDUSTRIAL SALES,
age 52 -- Mr. Tankersley has been with the Company since 2002 and
was named Senior Vice President in August 2003. He was previously
Director of Industrial Sales at Mauna Loa Macadamia Co. from
September 2000 to December 2001 and Vice President of Sales and
Marketing with the Young Pecan Company from November 1992 to
August 2000.
10
EVERARDO SORIA, SENIOR VICE PRESIDENT PECAN OPERATIONS AND
PROCUREMENT, age 46 -- Mr. Soria has been with the Company since
1985 and was named Senior Vice President Pecan Operations and
Procurement in August 2003. Mr. Soria is responsible for the
procurement of pecans and for the shelling of pecans at the
Company's Selma, Texas facility.
HERBERT J. MARROS, CONTROLLER, age 45 -- Mr. Marros has been with
the Company since 1995 and was named Controller in August 2003.
Mr. Marros is responsible for the Company's financial reporting.
CERTAIN RELATIONSHIPS AMONG DIRECTORS AND EXECUTIVE OFFICERS
Jasper B. Sanfilippo, Chairman of the Board and Chief Executive
Officer and a director of the Company, is (i) the father of Jasper
B. Sanfilippo, Jr., an executive officer of the Company and
Jeffrey T. Sanfilippo, an executive officer and a director of the
Company, as indicated above, (ii) the brother-in-law of Mathias A.
Valentine, President and a director of the Company, and (iii) the
uncle of Michael J. Valentine who is an executive officer and a
director of the Company and James A. Valentine, an executive
officer of the Company, as indicated above. Mathias A. Valentine,
President and a director of the Company, is (i) the brother-in-law
of Jasper B. Sanfilippo, (ii) the uncle of Jasper B. Sanfilippo,
Jr. and Jeffrey T. Sanfilippo, and (iii) the father of Michael J.
Valentine and James A. Valentine. Michael J. Valentine, Executive
Vice President, Chief Financial Officer and Secretary and a
director of the Company, is (i) the son of Mathias A. Valentine,
(ii) the brother of James A. Valentine, (iii) the nephew of Jasper
B. Sanfilippo, and (iv) the cousin of Jasper B. Sanfilippo, Jr.
and Jeffrey T. Sanfilippo. Jeffrey T. Sanfilippo, Executive Vice
President Sales and Marketing and a director of the Company, is
(i) the son of Jasper B. Sanfilippo, (ii) the brother of Jasper B.
Sanfilippo Jr., (iii) the nephew of Mathias A Valentine, and (iv)
the cousin of Michael J. Valentine and James A. Valentine.
11
PART II
-------
Item 5 -- Market for Registrant's Common Equity and Related
Stockholder Matters
- -----------------------------------------------------------
The Company has two classes of stock: Class A Common Stock
("Class A Stock") and Common Stock. The holders of Common Stock
are entitled to elect 25% of the members of the Board of
Directors and the holders of Class A Stock are entitled to elect
the remaining directors. With respect to matters other than the
election of directors or any matters for which class voting is
required by law, the holders of Common Stock are entitled to one
vote per share while the holders of Class A Stock are entitled to
ten votes per share. The Company's Class A Stock is not
registered under the Securities Act of 1933 and there is no
established public trading market for the Class A Stock.
However, each share of Class A Stock is convertible at the option
of the holder at any time and from time to time (and, upon the
occurrence of certain events specified in the Company's Restated
Certificate of Incorporation, automatically converts) into one
share of Common Stock.
The Common Stock of the Company is quoted on the NASDAQ National
Market and its trading symbol is "JBSS". The following tables
set forth, for the quarters indicated, the high and low reported
last sales prices for the Common Stock as reported on the NASDAQ
national market.
Price Range of
Common Stock
--------------
Year Ended June 26, 2003 High Low
------------------------ ------ ------
4th Quarter $19.40 $13.83
3rd Quarter $14.23 $ 9.80
2nd Quarter $ 9.81 $ 6.55
1st Quarter $ 6.99 $ 5.70
Price Range of
Common Stock
--------------
Year Ended June 27, 2002 High Low
------------------------ ------ ------
4th Quarter $ 7.16 $ 6.00
3rd Quarter $ 6.40 $ 5.05
2nd Quarter $ 6.73 $ 4.90
1st Quarter $ 6.68 $ 4.75
As of September 2, 2003, there were approximately 1,200 holders
and 15 holders of record of the Company's Common Stock and Class
A Stock, respectively.
Under the Company's Restated Certificate of Incorporation, the
Class A Stock and the Common Stock are entitled to share equally
on a share for share basis in any dividends declared by the Board
of Directors on the Company's common equity.
No dividends were declared from 1995 through 2003. The
declaration and payment of future dividends will be at the sole
discretion of the Board of Directors and will depend on the
Company's profitability, financial condition, cash requirements,
future prospects and other factors deemed relevant by the Board
of Directors. The Company's current loan agreements restrict the
payment of annual dividends to amounts specified in the loan
agreements. See Item 7 -- "Management's Discussion and Analysis
of Financial Condition and Results of Operations --Liquidity and
Capital Resources."
For purposes of the calculation of the aggregate market value of
the Company's voting stock held by nonaffiliates of the Company as
set forth on the cover page of this Report, the Company did not
consider any of the siblings of Jasper B. Sanfilippo, or any of
the lineal descendants (all of whom are adults and some of whom
12
are employed by the Company) of either Jasper B. Sanfilippo,
Mathias A. Valentine or such siblings (other than those who are
executive officers of the Company) as an affiliate of the Company.
See "Compensation Committee Interlocks, Insider Participation and
Certain Transactions" and "Security Ownership of Certain
Beneficial Owners and Management" contained in the Company's Proxy
Statement for the 2003 Annual Meeting and "Executive Officers of
the Registrant -- Certain Relationships Among Directors and
Executive Officers" appearing immediately after Part I of this
Report.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table summarizes the Company's equity compensation
plans as of June 26, 2003:
Number of
securities remaining
available for future
issuance under
equity
Number of compensation plans
securities to be Weighted average (excluding
issued upon exercise price of securities reflected
exercise of options outstanding options in the first column)
------------------- ------------------- --------------------
Equity compensation plans
approved by stockholders 246,375 $6.27 389,000
Equity compensation plans
not approved by
stockholders 5,200 $9.43 --
------- -------
Total 251,575 $6.34 389,000
======= =======
For more information concerning the equity compensation plan not
approved by stockholders (the 1991 Stock Option Plan), see Note 10
of the Notes to Consolidated Financial Statements.
Item 6 -- Selected Financial Data
- ---------------------------------
The following historical consolidated financial data as of and
for the years ended June 26, 2003, June 27, 2002, June 28, 2001,
June 29, 2000 and June 24, 1999 were derived from the Company's
audited consolidated financial statements. The financial data
should be read in conjunction with the Company's audited
consolidated financial statements and notes thereto, which are
included elsewhere herein, and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The
information below is not necessarily indicative of the results of
future operations. No dividends were declared from 1995 to 2003.
13
Statement of Operations Data: ($ in thousands, except per share data)
Year Ended
----------------------------------------------------
June 26, June 27, June 28, June 29, June 24,
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
Net sales $408,534 $343,245 $334,878 $320,926 $308,216
Cost of sales 347,041 294,931 283,278 272,025 268,333
-------- -------- -------- -------- --------
Gross profit 61,493 48,314 51,600 48,901 39,883
Selling and administrative
expenses 32,664 30,412 31,199 30,304 27,955
-------- -------- -------- -------- --------
Income from operations 28,829 17,902 20,401 18,597 11,928
Interest expense 4,681 5,757 8,365 8,036 9,269
Other income 486 590 622 701 510
-------- -------- -------- -------- --------
Income before income taxes 24,634 12,735 12,658 11,262 3,169
Income tax expense 9,607 5,044 5,063 4,505 1,373
-------- -------- -------- -------- --------
Net income $ 15,027 $ 7,691 $ 7,595 $ 6,757 $ 1,796
======== ======== ======== ======== ========
Basic earnings per
common share $ 1.63 $ 0.84 $ 0.83 $ 0.74 $ 0.20
Diluted earnings per
common share $ 1.61 $ 0.84 $ 0.83 $ 0.74 $ 0.20
Balance Sheet Data: ($ in thousands)
June 26, June 27, June 28, June 29, June 24,
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
Working capital $ 75,182 $ 67,645 $ 55,055 $ 60,168 $ 53,515
Total assets 223,727 206,815 211,007 217,031 207,331
Long-term debt, less
current maturities 29,640 40,421 39,109 51,779 57,508
Total debt 70,118 69,623 89,307 99,355 99,591
Stockholders' equity 118,781 102,060 94,346 86,751 79,994
Item 7 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations
- -----------------------------------------------------------
GENERAL
- -------
The Company's fiscal year ends on the final Thursday of June each
year, and typically consists of fifty-two weeks (four thirteen
week quarters). References herein to fiscal 2003 are to the
fiscal year ended June 26, 2003. References herein to fiscal
2002 are to the fiscal year ended June 27, 2002. References
herein to fiscal 2001 are to the fiscal year ended June 28, 2001.
As used herein, unless the context otherwise indicates, the terms
"Company" and "JBSS" refer collectively to John B. Sanfilippo &
Son, Inc. and its wholly owned subsidiary, JBS International, Inc.
The Company's business is seasonal. Demand for peanut and other
nut products is highest during the months of October, November
and December. Peanuts, pecans, walnuts, almonds and cashews, the
Company's principal raw materials, are purchased primarily during
the period from August to February and are processed throughout
the year. As a result of this seasonality, the Company's
personnel and working capital requirements peak during the last
four months of the calendar year.
Also, due primarily to the seasonal nature of the Company's
business, the Company maintains significant inventories of
peanuts, pecans, walnuts, almonds and other nuts at certain times
of the year, especially during the second and third quarters of
the Company's fiscal year. Fluctuations in the market prices of
such nuts may affect the value of the Company's inventory and
14
thus the Company's profitability. There can be no assurance that
future write-downs of the Company's inventory may not be required
from time to time because of market price fluctuations,
competitive pricing pressures, the effects of various laws or
regulations or other factors. See "Forward Looking Statements --
Factors That May Affect Future Results -- Availability of Raw
Materials and Market Price Fluctuations".
At June 26, 2003, the Company's inventories totaled
approximately $112.0 million compared to approximately $99.5
million at June 27, 2002. The increase in inventories at June
26, 2003 when compared to June 27, 2002 is primarily due to (i) an
increase in finished goods to support the increase in sales
volume, (ii) an increase in the quantity of almonds on hand due to
higher purchases during fiscal 2003 than fiscal 2002, and (iii) an
increase in the purchase price of pecans. These increases in
inventories were partially offset by decreases in inshell peanuts
on hand due to a smaller domestic crop in fiscal 2003. See
"Forward Looking Statements -- Factors That May Affect Future
Results -- Availability of Raw Materials and Market Price
Fluctuations."
To enhance consumer awareness of dietary issues
associated with the consumption of peanuts and other nut
products, the Company has taken steps to educate consumers about
the benefits of nut consumption. Also, there have been various
medical studies detailing the healthy attributes of nuts and the
Mediterranean Diet Pyramid promotes the daily consumption of nuts
as part of a healthy diet. The Company has no experience or data
that indicates that the growth in the number of health conscious
consumers will cause a change in nut consumption. Also, over the
last few years there has been some publicity concerning allergic
reactions to peanuts and other nuts. However, the Company has no
experience or data that indicates peanut and other nut related
allergies have affected the Company's business. Furthermore, the
Company does not presently believe that nut related allergies
will have a material adverse affect on the Company's financial
results in the foreseeable future.
CRITICAL ACCOUNTING POLICIES
- ----------------------------
The accounting policies as disclosed in the Notes to Consolidated
Financial Statements are applied in the preparation of the
Company's financial statements and accounting for the underlying
transactions and balances. The policies discussed below are
considered by management to be critical for an understanding of
the Company's financial statements because the application of
these policies places the most significant demands on
management's judgment, with financial reporting results relying
on estimation about the effect of matters that are inherently
uncertain. Specific risks, if applicable, for these critical
accounting policies are described in the following paragraphs.
For a detailed discussion on the application of these and other
accounting policies, see Note 1 of the Notes to Consolidated
Financial Statements. Preparation of this Annual Report on Form
10-K requires us to make estimates and assumptions that affect
the reported amount of assets and liabilities, disclosure of
contingent assets and liabilities at the date of our financial
statements, and the reported amounts of revenue and expenses
during the reporting period. Actual results may differ from
those estimates.
Accounts Receivable
- -------------------
Accounts receivable are stated at the amounts charged to
customers, less: (i) an allowance for doubtful accounts; (ii) a
reserve for estimated cash discounts; and (iii) a reserve for
customer deductions. The allowance for doubtful accounts is
calculated by specifically identifying customers that are credit
risks. The reserve for estimated cash discounts is estimated
using historical payment patterns. The reserve for customer
deductions represents an estimate of future credit memos that
will be issued to customers and is based on historical
experience.
Inventories
- -----------
Inventories are stated at the lower of cost (first-in, first-out)
or market. Fluctuations in the market price of peanuts, pecans,
walnuts, almonds and other nuts may affect the value of the
Company's inventory and thus the Company's gross profit and gross
profit margin. If market prices were to move below cost, the
Company would record adjustments to write down the carrying
values of inventories to fair market value.
15
Customer Incentives
- -------------------
The ability to sell to certain retail customers often requires
upfront payments by the Company. Such payments are made pursuant
to contracts that usually stipulate the term of the agreement,
the quantity and type of products to be sold and any exclusivity
requirements. The cost of these payments is initially recorded as
an asset and is amortized on a straight-line basis over the term
of the contract as a reduction in revenues.
Related Party Transactions
- --------------------------
As discussed in Note 7 and Note 9 of the Notes to Consolidated
Financial Statements, the Company leases space from related
parties and transacts with other related parties in the normal
course of business. These related party transactions are
conducted on an arm's-length basis.
RESULTS OF OPERATIONS
- ---------------------
The following table sets forth the percentage relationship of
certain items to net sales for the periods indicated and the
percentage increase or decrease of such items from fiscal 2002 to
fiscal 2003 and from fiscal 2001 to fiscal 2002.
Percentage of Net Sales Percentage Increase(Decrease)
------------------------------------ ------------------------------------------
Fiscal 2003 Fiscal 2002 Fiscal 2001 Fiscal 2003 vs. 2002 Fiscal 2002 vs. 2001
----------- ----------- ----------- -------------------- --------------------
Net sales 100.0% 100.0% 100.0% 19.0% 2.5%
Gross profit 15.1 14.1 15.4 27.3 (6.4)
Selling expenses 5.4 6.1 6.6 4.9 (5.4)
Administrative expenses 2.6 2.7 2.7 13.1 4.7
Income from operations 7.1 5.2 6.1 61.0 (12.2)
Fiscal 2003 Compared to Fiscal 2002
- -----------------------------------
Net Sales. Net sales increased from approximately $343.2 million
for fiscal 2002 to approximately $408.5 million for fiscal 2003,
an increase of approximately $65.3 million or 19.0%. The increase
in net sales was due primarily to higher unit volume sales to the
Company's retail, export and industrial customers. The increase in
net sales to retail customers was due primarily to an increase in
private label business through the addition of new customers and
the expansion of business to existing customers. The increase in
net sales to export customers is due primarily to higher almond
sales to the Asian market and increased snack nut sales to the
Canadian market. The increase in sales to industrial customers is
due primarily to the increased usage of nuts as ingredients in
food products. The Company believes that a portion of the overall
increase in net sales is attributable to the growing awareness of
the health benefits of nuts in the daily diet.
The following table shows an annual comparison of sales by
distribution channel, as a percentage of total sales:
Year Ended
-----------------------------
Distribution Channel June 26, 2003 June 27, 2002
-------------------- ------------- -------------
Consumer 56.2% 56.5%
Industrial 20.8 20.7
Food Service 8.8 10.8
Contract Packaging 6.4 6.6
Export 7.8 5.4
----- -----
Total 100.0% 100.0%
===== =====
16
The following table shows an annual comparison of sales by product
type, as a percentage of total sales:
Year Ended
-----------------------------
Product Type June 26, 2003 June 27, 2002
-------------------- ------------- -------------
Peanuts 25.3% 27.8%
Pecans 17.7 18.8
Cashews & Mixed Nuts 24.1 21.4
Walnuts 10.9 11.7
Almonds 10.1 7.7
Other 11.9 12.6
----- -----
Total 100.0% 100.0%
===== =====
Gross Profit. Gross profit in fiscal 2003 increased 27.3% to
approximately $61.5 million from approximately $48.3 million for
fiscal 2002. Gross profit margin increased from 14.1% for fiscal
2002 to 15.1% for fiscal 2003. The increase in gross profit
margin was due primarily to: (i) the increase in unit volume as
certain costs of sales are of a fixed nature, (ii) changes in the
sales mix, and (iii) generally lower commodity costs, especially
for peanuts which were directly impacted by the 2002 Farm Bill.
Selling and Administrative Expenses. Selling and
administrative expenses as a percentage of net sales decreased
from 8.9% for fiscal 2002 to 8.0% for fiscal 2003. Selling
expenses as a percentage of net sales decreased from 6.1% for
fiscal 2002 to 5.4% for fiscal 2003. This decrease was due
primarily to: (i) continuous efforts to control expenses and (ii)
the fixed nature of certain of these expenses relative to a larger
revenue base. Administrative expenses as a percentage of net
sales decreased from 2.7% for fiscal 2002 to 2.6% for fiscal 2003.
This decrease was due primarily to the fixed nature of these
expenses over a larger revenue base. Administrative expenses, in
gross dollars, increased from approximately $9.4 million in fiscal
2002 to approximately $10.6 million in fiscal 2003, an increase of
approximately $1.2 million, or 13.1%. This increase is due
primarily to higher incentive compensation expenses due to
improved operating results.
Income from Operations. Due to the factors discussed
above, income from operations increased from approximately $17.9
million, or 5.2% of net sales, for fiscal 2002 to approximately
$28.8 million, or 7.1% of net sales, for fiscal 2003.
Interest Expense. Interest expense decreased from approximately
$5.8 million for fiscal 2002 to approximately $4.7 million for
fiscal 2003. The decrease in interest expense was due primarily
to: (i) lower average levels of borrowings and (ii) lower interest
rates associated with the Bank Credit Facility, as defined below.
Income Taxes. Income tax expense was approximately $9.6
million, or 39.0% of income before income taxes, for fiscal 2003,
compared to approximately $5.0 million, or 39.6% of income before
income taxes, for fiscal 2002.
Fiscal 2002 Compared to Fiscal 2001
- -----------------------------------
Net Sales. Net sales increased from approximately $334.9 million
for fiscal 2001 to approximately $343.2 million for fiscal 2002,
an increase of approximately $8.4 million or 2.5%. The increase in
net sales was due primarily to higher unit volume sales to the
Company's retail and contract packaging customers, partially
offset by lower unit volume sales to the Company's industrial
customers during the first half of fiscal 2002. The increase in
sales to retail customers was due primarily to increased sales of
private label products. The decrease in sales to industrial
customers was due primarily to high sales of pecans during the
first half of fiscal 2001. The increase in net sales was
accomplished despite lower average selling prices during the last
half of fiscal 2002, due to lower commodity costs for pecans,
cashews and almonds.
17
Gross Profit. Gross profit in fiscal 2002 decreased 6.4% to
approximately $48.3 million from approximately $51.6 million for
fiscal 2001. Gross profit margin decreased from 15.4% for fiscal
2001 to 14.1% for fiscal 2002. The decrease in gross profit
margin was due primarily to: (i) a decrease in gross profit margin
on sales to industrial customers, (ii) an increase in private
label sales to retail customers, which sales generally carry lower
gross profit margins than sales of branded products and (iii) an
increase in sales to contract packaging customers, which sales
generally carry lower margins than sales to the Company's other
customers.
Selling and Administrative Expenses. Selling and
administrative expenses as a percentage of net sales decreased
from 9.3% for fiscal 2001 to 8.9% for fiscal 2002. Selling
expenses as a percentage of net sales decreased from 6.6% for
fiscal 2001 to 6.1% for fiscal 2002. This decrease was due
primarily to the fixed nature of these expenses relative to a
larger revenue base and the Company's efforts to control costs.
Administrative expenses as a percentage of net sales were 2.7% for
both fiscal 2002 and fiscal 2001.
Income from Operations. Due to the factors discussed
above, income from operations decreased from approximately $20.4
million, or 6.1% of net sales, for fiscal 2001 to approximately
$17.9 million, or 5.2% of net sales, for fiscal 2002.
Interest Expense. Interest expense decreased from approximately
$8.4 million for fiscal 2001 to approximately $5.8 million for
fiscal 2002. The decrease in interest expense was due primarily
to: (i) lower average levels of borrowings due to lower average
levels of inventories and (ii) lower interest rates associated
with the Bank Credit Facility, as defined below.
Income Taxes. Income tax expense was approximately $5.0
million, or 39.6% of income before income taxes, for fiscal 2002,
compared to approximately $5.1 million, or 40.0% of income before
income taxes, for fiscal 2001.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
General
- -------
During fiscal 2003, the Company continued to finance its
activities through the combination of a bank revolving credit
facility entered into on March 31, 1998 and last amended on May
30, 2003 (the "Bank Credit Facility"), $35.0 million borrowed
under a long-term financing facility originally entered into by
the Company in 1992 (the "Long-Term Financing Facility") and $25.0
million borrowed on September 12, 1995 under a long-term financing
arrangement (the "Additional Long-Term Financing").
Net cash provided by operating activities was approximately
$7.4 million for fiscal 2003 compared to approximately $24.4
million for fiscal 2002. The decrease in cash provided by
operating activities for fiscal 2003 when compared to fiscal 2002
was due largely to an increase in inventories of approximately
$12.5 million that occurred primarily as a result of (i)
purchasing a significantly greater quantity of almonds in fiscal
2003, and (ii) an increase in the purchase price of pecans in
fiscal 2003. The largest component of net cash used in investing
activities during fiscal 2003 was approximately $7.9 million in
capital expenditures, compared to approximately $4.6 million
during fiscal 2002. This increase in capital expenditures was due
primarily to the expansion of processing capacities and
capabilities at the Company's Gustine, California facility. Notes
payable increased to approximately $29.7 million at June 26, 2003
from approximately $23.5 million at June 27, 2002, due primarily
to the increase in the purchase of inventories. During both
fiscal 2003 and fiscal 2002, the Company repaid approximately $5.7
million of long-term debt.
Financing Arrangements
- ----------------------
The Bank Credit Facility is comprised of (i) a working
capital revolving loan which provides working capital financing of
up to approximately $73.1 million, in the aggregate, and matures,
18
as amended, on May 31, 2006, and (ii) a $6.9 million letter of
credit (the "IDB Letter of Credit") to secure the industrial
development bonds described below which matures on June 1, 2006.
The IDB Letter of Credit replaced a prior letter of credit that
matured on June 1, 2002. The Bank Credit Facility was amended on
May 30, 2003 to, among other things: (i) extend the maturity of
the facility for three additional years and (ii) increase the
total amount of the facility from $70.0 million to $80.0 million.
Borrowings under the working capital revolving loan accrue
interest at a rate (the weighted average of which was 2.76% at
June 26, 2003) determined pursuant to a formula based on the agent
bank's quoted rate and the Eurodollar Interbank rate.
As of June 26, 2003, the total principal amount outstanding under
the Long-Term Financing Facility was $6.6 million of the original
amount borrowed of $35.0 million. Of the remaining balance of $6.6
million, $3.75 million bears interest at rates ranging from 7.34%
to 9.18% per annum payable quarterly, and requires equal semi-
annual principal installments of approximately $1.3 million, with
the final installment due on August 16, 2004. The remaining $2.85
million of this indebtedness bears interest at a rate of 9.16% per
annum payable quarterly, and requires equal semi-annual principal
installments of approximately $0.5 million, with the final
installment due on May 15, 2006.
As of June 26, 2003, the total principal amount outstanding under
the Additional Long-Term Financing was approximately $19.3 million
of the original amount borrowed of $25.0 million. Of the remaining
balance of approximately $19.3 million, approximately $4.3 million
bears interest at a rate of 8.3% per annum payable semiannually,
and requires equal annual principal installments of approximately
$1.4 million, with the final installment due on September 1, 2005.
The remaining $15.0 million of this indebtedness (which is
subordinated to the Company's other financing facilities) bears
interest at a rate of 9.38% per annum payable semiannually, and
requires equal annual principal installments of $5.0 million, with
the final installment due on September 1, 2005.
The terms of the Company's financing facilities, as amended,
include certain restrictive covenants that, among other things:
(i) require the Company to maintain specified financial ratios;
(ii) limit the Company's annual capital expenditures; and (iii)
require that Jasper B. Sanfilippo (the Company's Chairman of the
Board and Chief Executive Officer) and Mathias A. Valentine (a
director and the Company's President) together with their
respective immediate family members and certain trusts created for
the benefit of their respective sons and daughters, continue to
own shares representing the right to elect a majority of the
directors of the Company. In addition, (i) the Long-Term
Financing Facility limits the Company's payment of dividends to a
cumulative amount not to exceed 25% of the Company's cumulative
net income from and after January 1, 1996, (ii) the Additional
Long-Term Financing limits cumulative dividends to the sum of (a)
50% of the Company's cumulative net income (or minus 100% of the
Company's cumulative net loss) from and after January 1, 1995 to
the date the dividend is declared, (b) the cumulative amount of
the net proceeds received by the Company during the same period
from any sale of its capital stock, and (c) $5.0 million, and
(iii) the Bank Credit Facility limits dividends to the lesser of
(a) 25% of net income for the previous fiscal year, or (b) $5.0
million, and prohibits the Company from redeeming shares of
capital stock. As of June 26, 2003, the Company was in compliance
with all restrictive covenants, as amended, under its financing
facilities.
The Company has $6.75 million in aggregate principal amount
of industrial development bonds outstanding which was used to
finance the acquisition, construction and equipping of the
Company's Bainbridge, Georgia facility (the "IDB Financing"). The
bonds bear interest payable semiannually at 4.00% (which was reset
on June 1, 2002) through May 2006. On June 1, 2006, and on each
subsequent interest reset date for the bonds, the Company is
required to redeem the bonds at face value plus any accrued and
unpaid interest, unless a bondholder elects to retain his or her
bonds. Any bonds redeemed by the Company at the demand of a
bondholder on the reset date are required to be remarketed by the
underwriter of the bonds on a "best efforts" basis. Funds for the
redemption of bonds on the demand of any bondholder are required
to be obtained from the following sources in the following order
of priority: (i) funds supplied by the Company for redemption;
(ii) proceeds from the remarketing of the bonds; (iii) proceeds
from a drawing under the IDB Letter of Credit; or (iv) in the
event funds from the foregoing sources are insufficient, a
mandatory payment by the Company. Drawings under the IDB Letter
of Credit to redeem bonds on the demand of any bondholder are
payable in full by the Company upon demand of the lenders under
the Bank Credit Facility. In addition, the Company is required to
19
redeem the bonds in varying annual installments, ranging from
approximately $0.3 million in fiscal 2004 to approximately $0.8
million in fiscal 2017. The Company is also required to redeem
the bonds in certain other circumstances; for example, within 180
days after any determination that interest on the bonds is
taxable. The Company has the option, subject to certain
conditions, to redeem the bonds at face value plus accrued
interest, if any.
Capital Expenditures
- --------------------
For fiscal 2003, capital expenditures were approximately $7.9
million. The Company believes that capital expenditures for
fiscal 2004 will be in the $9.0 - $10.0 million range. The most
significant planned capital expenditure for fiscal 2004 is
approximately $2.5 - $3.0 million for an increase in storage
capacity of inshell pecans at the Selma, Texas facility.
Approximately $1.1 million was incurred on this project during
fiscal 2003. The Company is currently exploring the possible
consolidation of certain of its production facilities into a
single location through the construction of a new production
facility. If the consolidation proceeds, it is unlikely that such
a facility could be financed using the Company's existing credit
facilities. In that event, the Company would consider evaluating
other financing alternatives, including but not limited to debt
financing and/or the issuance of common stock in a private
placement.
Capital Resources
- -----------------
As of June 26, 2003, the Company had approximately $40.5 million
of available credit under the Bank Credit Facility. Scheduled
long-term debt payments for fiscal 2004 are approximately $10.8
million. Scheduled operating lease payments are approximately
$1.3 million. The Company believes that cash flow from operating
activities and funds available under the Bank Credit Facility will
be sufficient to meet working capital requirements and anticipated
capital expenditures for the foreseeable future. However, if the
Company elects to construct a new processing facility, additional
financing sources may be required to fund the capital expenditures
that would be necessary for that project.
Contractual Cash Obligations
- ----------------------------
At June 26, 2003, the Company had the following contractual cash
obligations (amounts in thousands):
Year Year Year Year Year
Ending Ending Ending Ending Ending
June 24, June 30, June 29, June 28, June 26,
2004 2005 2006 2007 2008 Thereafter
-------- -------- -------- -------- -------- ----------
Long-term debt $13,922 $11,816 $15,724 $1,575 $1,575 $4,519
Minimum operating
lease commitments 1,252 1,355 1,000 214 133 10
------- ------- ------- ------ ------ ------
Total contractual
cash obligations $15,174 $13,171 $16,724 $1,789 $1,708 $4,529
======= ======= ======= ====== ====== ======
RECENT ACCOUNTING PRONOUNCEMENTS
- --------------------------------
The Company adopted Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets", effective June 28, 2002.
SFAS 142 requires, among other things, the discontinuance of
goodwill amortization. In addition, SFAS 142 includes provisions
for the reclassification of certain existing recognized intangible
assets as goodwill, reassessment of the useful lives of existing
recognized intangible assets, reclassification of certain
intangible assets out of previously reported goodwill and the
identification of reporting units for purposes of assessing
potential future impairments of goodwill. The Company's recorded
assets at June 28, 2002 included both an intangible asset and
goodwill.
20
Based upon the results of management's impairment testing, which
included an independent valuation, no adjustment to the carrying
amount of goodwill and the intangible asset is required. As
required under SFAS 142, amortization of goodwill has been
discontinued.
In June 2001, the FASB issued SFAS 143, "Accounting for Asset
Retirement Obligations". This statement requires that the fair
value of a liability for an asset retirement obligation be
recognized in the period in which it is incurred if a reasonable
estimate of fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying amount of
the long-lived asset. SFAS 143 became effective in the first
quarter of fiscal 2003. The implementation of SFAS 143 did not
have an effect on the Company's cash flows, financial position or
results of operations.
In August 2001, the FASB issued SFAS 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". This statement
provides a single, comprehensive accounting model for impairment
and disposal of long-lived assets and discontinued operations.
SFAS 144 became effective in the first quarter of fiscal 2003.
The adoption of SFAS 144 had no impact on the Company's cash
flows, financial position or results of operations.
In June 2002, the FASB issued SFAS 146, "Accounting for Costs
Associated with Exit or Disposal Activities". This statement
addresses financial accounting and reporting for costs associated
with exit or disposal activities. SFAS 146 became effective in the
third quarter of fiscal 2003. The adoption of SFAS 146 had no
impact on the Company's cash flows, financial position or results
of operations.
In November 2002, the FASB issued Interpretation 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others". Interpretation 45
requires a guarantor to include disclosure of certain obligations
and, if applicable, at the inception of the guarantee, recognize a
liability for the fair value of other certain obligations
undertaken in issuing a guarantee. The recognition requirement
became effective for guarantees issued or modified after December
31, 2002 and did not have an impact on the Company. The Company
adopted the disclosure requirements of Interpretation 45 effective
December 2002. The Company has no obligations from guarantees that
require disclosure at June 26, 2003, except for a $6,896 standby
letter of credit to secure industrial revenue bonds (as discussed
in Note 6) and a $1,833 standby letter of credit related to self-
insurance requirements.
In December 2002, the FASB issued SFAS 148, "Accounting for Stock-
Based Compensation - Transition and Disclosure". SFAS 148 amends
certain provisions of SFAS 123 and is effective for fiscal years
beginning after December 15, 2002. The Company is currently
evaluating the reporting alternatives of SFAS 148.
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN
46"), "Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51". FIN 46 requires certain variable
interest entities to be consolidated by the primary beneficiary of
the entity if the equity investors do not have the characteristics
of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN
46 is effective immediately for all new variable interest entities
created or acquired after January 31, 2003. For variable interest
entities created or acquired prior to February 1, 2003, the
provisions of FIN 46 will become effective during the first
quarter of fiscal 2004. The Company enters into various transactions
with certain related parties including the rental of buildings under
capital leases and purchases from entities owned either directly or
indirectly by certain directors, officers and stockholders of the
Company. Based on management's initial analysis, it is at least
reasonably possible that the Company may be required to consolidate
or disclose information for one or more of these entities once the
provisions of FIN 46 become effective during the first quarter of
fiscal 2004. These related party transactions are more fully
described in Notes 7 and 9 of the Notes to Consolidated Financial
Statements.
In April 2003, the FASB issued SFAS 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities," which
21
amends and clarifies financial accounting and reporting for
certain derivative instruments. The Company does not anticipate
the adoption of this statement to have a material impact on its
consolidated financial statements, as the Company is not currently
a party to derivative financial instruments included in this
standard.
In May 2003, the FASB issued SFAS 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity," which establishes standards for the classification and
measurement of certain financial instruments with characteristics
of both liabilities and equity. The Company does not anticipate
the adoption of this statement to have a material impact on its
consolidated financial statements, as the Company is not currently
a party to such instruments included in this standard.
FORWARD LOOKING STATEMENTS
- --------------------------
The statements contained in this Annual Report on Form 10-K, and
in the Chairman's letter to stockholders accompanying the Annual
Report on Form 10-K delivered to stockholders, that are not
historical (including statements concerning the Company's
expectations regarding market risk) are "forward looking
statements". These forward looking statements, which generally
are followed (and therefore identified) by a cross reference to
"Factors That May Affect Future Results" or are identified by the
use of forward looking words and phrases such as "intend", "may",
"believes" and "expects", represent the Company's present
expectations or beliefs concerning future events. The Company
cautions that such statements are qualified by important factors
that could cause actual results to differ materially from those
in the forward looking statements, including the factors
described below under "Factors That May Affect Future Results",
as well as the timing and occurrence (or non-occurrence) of
transactions and events which may be subject to circumstances
beyond the Company's control. Consequently, results actually
achieved may differ materially from the expected results included
in these statements.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Availability of Raw Materials and Market Price Fluctuations
- -----------------------------------------------------------
The availability and cost of raw materials for the production of
the Company's products, including peanuts, pecans and other nuts
are subject to crop size and yield fluctuations caused by factors
beyond the Company's control, such as weather conditions and plant
diseases. Additionally, the supply of edible nuts and other raw
materials used in the Company's products could be reduced upon a
determination by the United States Department of Agriculture (the
"USDA") or other government agency that certain pesticides,
herbicides or other chemicals used by growers have left harmful
residues on portions of the crop or that the crop has been
contaminated by aflatoxin or other agents. Shortages in the
supply and resulting increases in the prices of nuts and other raw
materials used by the Company in its products (to the extent that
cost increases cannot be passed on to customers) could have an
adverse impact on the Company's profitability. Furthermore,
fluctuations in the market prices of nuts may affect the value of
the Company's inventories and the Company's profitability. The
Company has significant inventories of nuts that would be
adversely affected by any decrease in the market price of such raw
materials. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- General."
Competitive Environment
- -----------------------
The Company operates in a highly competitive environment. The
Company's principal products compete against food and snack
products manufactured and sold by numerous regional and national
companies, some of which are substantially larger and have greater
resources than the Company, such as Planters and Ralcorp Holdings,
Inc. The Company also competes with other shellers in the
industrial market and with regional processors in the retail and
wholesale markets. In order to maintain or increase its market
share, the Company must continue to price its products
competitively. This competitive pricing may lower revenue per
unit and cause declines in gross margin, if the Company is unable
to increase unit volumes as well as reduce its costs.
22
Fixed Price Commitments
- -----------------------
From time to time, the Company enters into fixed price commitments
with its customers. Such commitments typically represent
approximately 10% of the Company's annual net sales and are
normally entered into after the Company's cost to acquire the nut
products necessary to satisfy the fixed price commitment is
substantially fixed. However, the Company expects to continue to
enter into fixed price commitments with respect to certain of its
nut products prior to fixing its acquisition cost when, in
management's judgment, market or crop harvest conditions so
warrant. To the extent the Company does so, these fixed price
commitments may result in losses. Historically, however, such
losses have generally been offset by gains on other fixed price
commitments. However, there can be no assurance that losses from
fixed price commitments may not have a material adverse effect on
the Company's results of operations.
2002 Farm Bill
- --------------
The Farm Security and Rural Investment Act of 2002 (the "2002 Farm
Bill") terminated the federal peanut quota program beginning with
the 2002 crop year. The 2002 Farm Bill replaced the federal peanut
quota program with a fixed payment system through the 2007 crop
year that can be either coupled or decoupled. A coupled system is
tied to the actual amount of production, while a decoupled system
is not. The series of loans and subsidies established by the 2002
Farm Bill is similar to the systems used for other crops such as
grains and cotton. To compensate farmers for the elimination of
the peanut quota, the 2002 Farm Bill provides a buy-out at a
specified rate for each pound of peanuts that had been in that
farmer's quota under the prior program. Additionally, among other
provisions, the Secretary of Agriculture may make certain counter-
cyclical payments whenever the Secretary believes that the
effective price for peanuts is less than the target price.
The termination of the federal peanut quota program has resulted
in a decrease in the Company's cost for peanuts. Selling prices
have not been adversely affected in a material manner during
fiscal 2003, resulting in a favorable impact on the Company's
gross profit and gross profit margin. There are no assurances that
selling prices for peanuts will not be adversely affected in the
future or that the termination of the federal peanut quota program
will not have an adverse effect on the Company's business
Peanut Shelling Industry Antitrust Investigation
- ------------------------------------------------
On June 17, 2003, the Company received a subpoena for the
production of documents and records from the Antitrust Division of
the U.S. Department of Justice in connection with an antitrust
investigation of the peanut shelling industry. The Company expects
to cooperate fully in the investigation. There can be no
assurances as to the impact of the investigation on the peanut
shelling industry or that the investigation will not have a
material adverse effect on the Company.
Item 7A -- Quantitative and Qualitative Disclosures About Market Risk
- ---------------------------------------------------------------------
The Company has not entered into transactions using derivative
financial instruments. The Company believes that its exposure to
market risk related to its other financial instruments (which are
the debt instruments under "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and
Capital Resources") is not material.
23
Item 8 -- Financial Statements and Supplementary Data
- -----------------------------------------------------
REPORT OF MANAGEMENT
- --------------------
The management of John B. Sanfilippo & Son, Inc. has prepared and
is responsible for the integrity of the information presented in
this Annual Report on Form 10-K, including the Company's
financial statements. These statements have been prepared in
conformity with generally accepted accounting principles and
include, where necessary, informed estimates and judgments by
management.
The Company maintains systems of accounting and internal controls
designed to provide assurance that assets are properly accounted
for, as well as to ensure that the financial records are reliable
for preparing financial statements. The systems are augmented by
qualified personnel and are reviewed on a periodic basis.
Our independent auditors, PricewaterhouseCoopers LLP, conduct
annual audits of our financial statements in accordance with
generally accepted auditing standards, which include the review
of internal controls for the purpose of establishing audit scope
and the issuance of an opinion on the fairness of such financial
statements.
The Company has an Audit Committee that meets periodically with
management and the independent accountants to review the manner
in which they are performing their responsibilities and to
discuss auditing, internal accounting controls and financial
reporting matters. The independent accountants periodically meet
alone with the Audit Committee and have free access to the Audit
Committee at any time.
/s/ Michael J. Valentine
- ------------------------
Michael J. Valentine
Executive Vice President
Finance, Chief Financial
Officer and Secretary
REPORT OF INDEPENDENT AUDITORS
- ------------------------------
To the Board of Directors
and Stockholders of
John B. Sanfilippo & Son, Inc.:
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations, of
stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of John B. Sanfilippo &
Son, Inc. and its subsidiary at June 26, 2003 and June 27, 2002,
and the results of their operations and their cash flows for the
each of the three years in the period ended June 26, 2003, in
conformity with accounting principles generally accepted in the
United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is
to express an opinion on these financial statements based on our
audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Chicago, Illinois
August 18, 2003
24
JOHN B. SANFILIPPO & SON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended June 26, 2003, June 27, 2002 and June 28, 2001
(dollars in thousands, except for earnings per share)
Year Ended Year Ended Year Ended
June 26, 2003 June 27, 2002 June 28, 2001
------------- ------------- -------------
Net sales $408,534 $343,245 $334,878
Cost of sales 347,041 294,931 283,278
-------- -------- --------
Gross profit 61,493 48,314 51,600
-------- -------- --------
Selling expenses 22,071 21,047 22,251
Administrative expenses 10,593 9,365 8,948
-------- -------- --------
Total selling and
administrative expenses 32,664 30,412 31,199
-------- -------- --------
Income from operations 28,829 17,902 20,401
-------- -------- --------
Other income (expense):
Interest expense ($842,
$899 and $956 to
related parties) (4,681) (5,757) (8,365)
Rental income 484 576 605
Miscellaneous 2 14 17
-------- -------- --------
Total other (expense) (4,195) (5,167) (7,743)
-------- -------- --------
Income before income taxes 24,634 12,735 12,658
Income tax expense 9,607 5,044 5,063
-------- -------- --------
Net income $ 15,027 $ 7,691 $ 7,595
======== ======== ========
Basic earnings per
common share $ 1.63 $ 0.84 $ 0.83
======== ======== ========
Diluted earnings per
common share $ 1.61 $ 0.84 $ 0.83
======== ======== ========
Weighted average shares
outstanding - basic 9,198,957 9,149,672 9,148,565
========= ========= =========
Weighted average shares
outstanding - diluted 9,332,889 9,194,951 9,150,332
========= ========= =========
The accompanying notes are an integral part of these financial statements.
25
JOHN B. SANFILIPPO & SON, INC.
CONSOLIDATED BALANCE SHEETS
June 26, 2003 and June 27, 2002
(dollars in thousands)
June 26, June 27,
2003 2002
-------- ---------
ASSETS
CURRENT ASSETS:
Cash $ 2,448 $ 1,272
Accounts receivable, less allowances
of $1,552 and $1,406 29,142 24,133
Inventories 112,016 99,485
Deferred income taxes 1,257 861
Income taxes receivable 469 --
Prepaid expenses and other current assets 2,192 3,032
-------- --------
TOTAL CURRENT ASSETS 147,524 128,783
-------- --------
PROPERTIES:
Buildings 61,485 60,348
Machinery and equipment 89,980 84,420
Furniture and leasehold improvements 5,385 5,399
Vehicles 3,185 3,684
Construction in progress 1,057 --
-------- --------
161,092 153,851
Less: Accumulated depreciation 95,838 88,252
-------- --------
65,254 65,599
Land 1,863 1,863
-------- --------
TOTAL PROPERTIES 67,117 67,462
-------- --------
OTHER ASSETS:
Goodwill and other intangibles, less
accumulated amortization of
$6,054 and $5,628 4,370 4,796
Miscellaneous 4,716 5,774
-------- --------
TOTAL OTHER ASSETS 9,086 10,570
-------- --------
TOTAL ASSETS $223,727 $206,815
======== ========
The accompanying notes are an integral part of these financial statements.
26
JOHN B. SANFILIPPO & SON, INC.
CONSOLIDATED BALANCE SHEETS
June 26, 2003 and June 27, 2002
(dollars in thousands, except per share amounts)
June 26, June 27,
2003 2002
-------- --------
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 29,702 $ 23,519
Current maturities of long-term debt 10,776 5,683
Accounts payable, including related
party payables of $543 and $337 13,658 17,741
Drafts payable 5,507 4,049
Accrued expenses 12,699 10,098
Income taxes payable -- 298
-------- --------
TOTAL CURRENT LIABILITIES 72,342 61,388
-------- --------
LONG-TERM LIABILITIES:
Long-term debt, less current maturities 29,640 40,421
Deferred income taxes 2,964 2,946
-------- --------
TOTAL LONG-TERM LIABILITIES 32,604 43,367
-------- --------
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY:
Class A Common Stock, convertible to
Common Stock on a per share basis,
cumulative voting rights of ten votes
per share, $.01 par value; 10,000,000
shares authorized, 3,667,426 and 3,687,426
shares issued and outstanding 37 37
Common Stock, noncumulative voting rights of
one vote per share, $.01 par value;
10,000,000 shares authorized, 5,775,564
and 5,583,939 shares issued and outstanding 58 56
Capital in excess of par value 58,911 57,219
Retained earnings 60,979 45,952
Treasury stock, at cost; 117,900 shares (1,204) (1,204)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 118,781 102,060
-------- --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $223,727 $206,815
======== ========
The accompanying notes are an integral part of these financial statements.
27
JOHN B. SANFILIPPO & SON, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended June 26, 2003, June 27, 2002 and June 28, 2001
(dollars in thousands)
Class A
Common Common Capital in Excess Retained Treasury
Stock Stock of Par Value Earnings Stock Total
------- ------ ----------------- -------- -------- --------
Balance, June 29, 2000 $37 $56 $57,196 $30,666 $(1,204) $ 86,751
Net income and comprehensive
income 7,595 7,595
--- --- ------- ------- ------- --------
Balance, June 28, 2001 37 56 57,196 38,261 (1,204) 94,346
Net income and comprehensive
income 7,691 7,691
Stock options exercised 23 23
--- --- ------- ------- ------- --------
Balance, June 27, 2002 37 56 57,219 45,952 (1,204) 102,060
Net income and comprehensive
income 15,027 15,027
Stock options exercised 2 1,173 1,175
Tax benefit of stock
options exercised 519 519
--- --- ------- ------- ------- --------
Balance, June 26, 2003 $37 $58 $58,911 $60,979 $(1,204) $118,781
=== === ======= ======= ======= ========
The accompanying notes are an integral part of these financial statements.
28
JOHN B. SANFILIPPO & SON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended June 26, 2003, June 27, 2002 and June 28, 2001
(dollars in thousands)
Year Ended Year Ended Year Ended
June 26, 2003 June 27, 2002 June 28, 2001
------------- ------------- -------------
Cash flows from operating activities:
Net income $ 15,027 $ 7,691 $ 7,595
Adjustments:
Depreciation and amortization 11,248 10,428 9,974
(Gain) loss on disposition of
properties (14) (13) 57
Deferred income taxes (378) (123) 226
Tax benefit of option exercises 519 -- --
Change in current assets and
current liabilities:
Accounts receivable, net (5,009) 2,524 (1,822)
Inventories (12,531) (918) 7,193
Prepaid expenses and other
current assets 840 (1,101) 777
Accounts payable (4,083) 6,312 (422)
Drafts payable 1,458 (895) (803)
Accrued expenses 2,601 1,958 (1,383)
Income taxes receivable/payable (767) 1,178 (1,341)
Other (1,508) (2,675) (1,716)
-------- -------- --------
Net cash provided by operating
activities 7,403 24,366 18,335
-------- -------- --------
Cash flows from investing activities:
Acquisition of properties (7,926) (4,559) (8,382)
Proceeds from disposition of
properties 29 51 80
-------- -------- --------
Net cash used in investing activities (7,897) (4,508) (8,302)
-------- -------- --------
Cash flows from financing activities:
Net borrowings (repayments) on
notes payable 6,183 (14,013) (4,342)
Principal payments on long-term debt (5,688) (5,671) (5,706)
Issuance of Common Stock 1,175 -- --
-------- -------- --------
Net cash provided by (used in)
financing activities 1,670 (19,684) (10,048)
-------- -------- --------
Net increase (decrease) in cash 1,176 174 (15)
Cash:
Beginning of period 1,272 1,098 1,113
-------- -------- --------
End of period $ 2,448 $ 1,272 $ 1,098
======== ======== ========
Supplemental disclosures of cash
flow information:
Interest paid $ 4,579 $ 5,846 $ 8,359
Income taxes paid 10,287 4,062 6,178
The accompanying notes are an integral part of these financial statements.
29
JOHN B. SANFILIPPO & SON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------
Basis of consolidation
- ----------------------
The consolidated financial statements include the accounts of John B.
Sanfilippo & Son, Inc. and its wholly owned subsidiary (collectively,
"JBSS" or the "Company"). Intercompany balances and transactions
have been eliminated. Certain prior years' amounts have been
reclassified to conform with the current year's presentation.
Nature of business
- ------------------
The Company processes and sells shelled and inshell nuts and other
snack foods in both retail and wholesale markets. The Company has
plants located throughout the United States. Revenues are generated
from sales to a variety of customers, including several major
retailers and the U.S. government. The related accounts receivable
from sales are unsecured.
Revenue recognition
- -------------------
The Company recognizes revenue when it is realized or realizable and
has been earned. Revenue is recognized when persuasive evidence of
an arrangement exists, the product has been delivered and legal title
and all risks of ownership have been transferred, sales terms are
complete, customer acceptance has occurred and payment is reasonably
assured.
Accounts Receivable
- -------------------
Accounts receivable are stated at the amounts charged to customers,
less: (i) an allowance for doubtful accounts; (ii) a reserve for
estimated cash discounts; and (iii) a reserve for customer
deductions. The allowance for doubtful accounts is calculated by
specifically identifying customers that are credit risks. The reserve
for estimated cash discounts is estimated using historical payment
patterns. The reserve for customer deductions represents an estimate
of future credit memos that will be issued to customers.
Inventories
- -----------
Inventories are stated at the lower of cost (first-in, first-out) or
market. The value of inventories may be impacted by market price
fluctuations.
Customer Incentives
- -------------------
The ability to sell to certain retail customers often requires
upfront payments by the Company. Such payments are made pursuant to
contracts that usually stipulate the term of the agreement, the
quantity and type of products to be sold and any exclusivity
requirements. The cost of these payments is initially recorded as an
asset and is amortized on a straight-line basis over the term of the
contract. Total customer incentives included in the "Miscellaneous
assets" and "Prepaid expenses and other current assets" captions are
$2,329 at June 26, 2003 and $3,399 at June 27, 2002. Amortization
expense, which is recorded as a reduction in revenues, was $2,262,
$1,865 and $1,528 for the years ended June 26, 2003, June 27, 2002
and June 28, 2001, respectively.
Properties
- ----------
Properties are stated at cost. Cost is depreciated using the
straight-line method over the following estimated useful lives:
buildings -- 30 to 40 years, machinery and equipment -- 5 to 10
years, furniture and leasehold improvements -- 5 to 10 years and
vehicles -- 3 to 5 years.
The cost and accumulated depreciation of assets sold or retired are
removed from the respective accounts, and any gain or loss is
recognized currently. Maintenance and repairs are charged to
operations as incurred.
30
Certain lease transactions relating to the financing of buildings are
accounted for as capital leases, whereby the present value of future
rental payments, discounted at the interest rate implicit in the
lease, is recorded as a liability. A corresponding amount is
capitalized as the cost of the assets and is amortized on a straight-
line basis over the estimated lives of the assets or over the lease
terms which range from 20 to 30 years, whichever is shorter. See also
Note 7.
Income taxes
- ------------
The Company accounts for income taxes using an asset and liability
approach that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that
have been reported in the Company's financial statements or tax
returns. In estimating future tax consequences, the Company
considers all expected future events other than changes in tax law or
rates.
Fair value of financial instruments
- -----------------------------------
Based on borrowing rates presently available to the Company under
similar borrowing arrangements, the Company believes the recorded
amount of its long-term debt obligations approximates fair market
value. The carrying amount of the Company's other financial
instruments approximates their estimated fair value based on market
prices for the same or similar type of financial instruments.
Significant customers
- ---------------------
The highly competitive nature of the Company's business provides an
environment for the loss of customers and the opportunity for new
customers. Net sales to Wal-Mart Stores, Inc. represented
approximately 17% and 16% of the Company's net sales for the years
ended June 26, 2003 and June 27, 2002, respectively.
Management estimates
- --------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Goodwill and other long-lived assets
- -------------------------------------
The Company adopted Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets", effective June 28, 2002. SFAS
142 requires, among other things, the discontinuance of goodwill
amortization. In addition, SFAS 142 includes provisions for the
reclassification of certain existing recognized intangible assets as
goodwill, reassessment of the useful lives of existing recognized
intangible assets, reclassification of certain intangible assets out
of previously reported goodwill and the identification of reporting
units for purposes of assessing potential future impairments of
goodwill. The Company's recorded assets at June 28, 2002 included
both an intangible asset and goodwill.
The intangible asset consists of the Fisher brand name that was
acquired in 1995. The Company determined that the brand name is of a
finite life and is being amortized over a fifteen-year period.
Amortization expense for the next five fiscal years is expected to be
approximately $427 annually.
The goodwill represents the excess of the purchase price over the fair
value of the net assets in the Company's acquisition of Sunshine Nut
Co., Inc. in 1992. The Company determined that it has no separate
reporting units; therefore, the goodwill impairment test was performed
using the fair value of the entire Company.
Based upon the results of management's impairment testing, which
included an independent valuation, no adjustment to the carrying
amount of goodwill and the intangible asset is required. As required
under SFAS 142, amortization of goodwill has been discontinued.
The Company reviews the carrying value of goodwill and other
long-lived assets for impairment when events or changes in
circumstances indicate that the carrying amount of the asset may
not be recoverable. If an impairment was determined to exist, any
related impairment loss would be calculated based on fair value.
Impairment losses, if any, on assets to be disposed of would be
based on the estimated proceeds to be received, less costs of
disposal.
The following table details goodwill and other intangible assets
as of June 26, 2003:
Gross Carrying Accumulated Net Carrying
Amount Amortization Amount
------- ------ ------
Goodwill $2,504 $1,262 $1,242
Finite-lived amortized
intangible assets 6,368 3,240 3,128
------ ------ ------
Total $8,872 $4,502 $4,370
====== ====== ======
As required under SFAS 142, the results for the years ended June
27, 2002 and June 28, 2001 have not been restated. The tables
below present the effect on net income and earnings per share as
if SFAS 142 had been in effect for those years:
Year Ended Year Ended Year Ended
June 26, 2003 June 27, 2002 June 28, 2001
------------- ------------- -------------
Reported net income $15,027 $7,691 $7,595
Add back:
Goodwill amortization
(net of tax) -- 75 75
------- ------ ------
Adjusted net income $15,027 $7,766 $7,670
======= ====== ======
Basic and diluted earnings
per share:
Reported earnings per
common share (basic) $1.63 $0.84 $0.83
Adjusted earnings per
common share (basic) $1.63 $0.85 $0.84
Reported earnings per
common share (diluted) $1.61 $0.84 $0.83
Adjusted earnings per
common share (diluted) $1.61 $0.84 $0.84
Recent accounting pronouncements
- --------------------------------
In June 2001, the FASB issued SFAS 143, "Accounting for Asset
Retirement Obligations". This statement requires that the fair value
of a liability for an asset retirement obligation be recognized in the
period in which it is incurred if a reasonable estimate of fair value
can be made. The associated asset retirement costs are capitalized as
part of the carrying amount of the long-lived asset. SFAS 143 became
effective in the first quarter of fiscal 2003. The implementation of
SFAS 143 did not have an effect on the Company's cash flows, financial
position or results of operations.
In August 2001, the FASB issued SFAS 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". This statement provides
a single, comprehensive accounting model for impairment and disposal
of long-lived assets and discontinued operations. SFAS 144 became
effective in the first quarter of fiscal 2003. The adoption of SFAS
144 had no impact on the Company's cash flows, financial position or
results of operations.
In June 2002, the FASB issued SFAS 146, "Accounting for Costs
Associated with Exit or Disposal Activities". This statement
addresses financial accounting and reporting for costs associated
with exit or disposal activities. SFAS 146 became effective in the
third quarter of fiscal 2003. The adoption of SFAS 146 had no impact
on the Company's cash flows, financial position or results of
operations.
32
In November 2002, the FASB issued Interpretation 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others". Interpretation 45
requires a guarantor to include disclosure of certain obligations and,
if applicable, at the inception of the guarantee, recognize a
liability for the fair value of other certain obligations undertaken
in issuing a guarantee. The recognition requirement became effective
for guarantees issued or modified after December 31, 2002 and did not
have an impact on the Company. The Company adopted the disclosure
requirements of Interpretation 45 effective December 2002. The Company
has no obligations from guarantees that require disclosure at June 26,
2003, except for a $6,896 standby letter of credit to secure
industrial revenue bonds (as discussed in Note 6) and a $1,833 standby
letter of credit related to self-insurance requirements.
In December 2002, the FASB issued SFAS 148, "Accounting for Stock-
Based Compensation - Transition and Disclosure". SFAS 148 amends
certain provisions of SFAS 123 and is effective for fiscal years
beginning after December 15, 2002. The Company is currently
evaluating the reporting alternatives of SFAS 148.
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN
46"), "Consolidation of Variable Interest Entities, an Interpretation
of ARB No. 51". FIN 46 requires certain variable interest entities to
be consolidated by the primary beneficiary of the entity if the equity
investors do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial
support from other parties. FIN 46 is effective immediately for all
new variable interest entities created or acquired after January 31,
2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 will become effective
quarter of fiscal 2004. The Company enters into various transactions
with certain related parties including the rental of buildings under
capital leases and purchases from entities owned either directly or
indirectly by certain directors, officers and stockholders of the
Company. Based on management's initial analysis, it is at least
reasonably possible that the Company may be required to consolidate
or disclose information for one or more of these entities once the
provisions of FIN 46 become effective during the first quarter of
fiscal 2004. These related party transactions are more fully
described in Notes 7 and 9 of the Notes to Consolidated Financial
Statements.
In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities," which amends and
clarifies financial accounting and reporting for certain derivative
instruments. The Company does not anticipate the adoption of this
statement to have a material impact on its consolidated financial
statements, as the Company is not currently a party to derivative
financial instruments included in this standard.
In May 2003, the FASB issued SFAS 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity," which establishes standards for the classification and
measurement of certain financial instruments with characteristics of
both liabilities and equity. The Company does not anticipate the
adoption of this statement to have a material impact on its
consolidated financial statements, as the Company is not currently a
party to such instruments included in this standard.
NOTE 2 - EARNINGS PER SHARE
- ---------------------------
Earnings per common share is calculated using the weighted average
number of shares of Common Stock and Class A Common Stock outstanding
during the period. The following table presents the required
earnings per share disclosures:
Year Ended Year Ended Year Ended
June 26, 2003 June 27, 2002 June 28, 2001
------------- ------------- -------------
Net income $15,027 $7,691 $7,595
Weighted average shares
outstanding 9,198,957 9,149,672 9,148,565
Basic earnings per common share $ 1.63 $ 0.84 $ 0.83
Effect of dilutive securities:
Stock options 133,932 45,279 1,767
Weighted average shares
outstanding 9,332,889 9,194,951 9,150,332
Diluted earnings per common share $ 1.61 $ 0.84 $ 0.83
33
The following table summarizes the weighted average number of options
which were outstanding for the periods presented but were not
included in the computation of diluted earnings per share because the
exercise prices of the options were greater than the average market
price of the Common Stock:
Weighted Average
Number of Options Exercise Price
----------------- ----------------
Year ended June 26, 2003 51,666 $10.38
Year ended June 27, 2002 166,256 $10.07
Year ended June 28, 2001 450,735 $ 8.16
NOTE 3 - COMMON STOCK
The Company's Class A Common Stock, $.01 par value (the "Class A
Stock"), has cumulative voting rights with respect to the election of
those directors which the holders of Class A Stock are entitled to
elect, and 10 votes per share on all other matters on which holders
of the Company's Class A Stock and Common Stock are entitled to vote.
In addition, each share of Class A Stock is convertible at the
option of the holder at any time into one share of Common Stock and
automatically converts into one share of Common Stock upon any sale
or transfer other than to related individuals. Each share of the
Company's Common Stock, $.01 par value (the "Common Stock") has
noncumulative voting rights of one vote per share. The Class A Stock
and the Common Stock are entitled to share equally, on a share-for-
share basis, in any cash dividends declared by the Board of
Directors, and the holders of the Common Stock are entitled to elect
25% of the members comprising the Board of Directors.
NOTE 4 - INCOME TAXES
- ---------------------
The provision for income taxes for the years ended June 26, 2003,
June 27, 2002 and June 28, 2001 are as follows:
June 26, June 27, June 28,
2003 2002 2001
-------- -------- --------
Current:
Federal $8,263 $4,183 $3,921
State 1,722 984 916
Deferred (378) (123) 226
------ ------ ------
Total provision for income taxes $9,607 $5,044 $5,063
====== ====== ======
The differences between income taxes at the statutory federal income
tax rate and income taxes reported in the statements of operations
for the years ended June 26, 2003, June 27, 2002 and June 28, 2001
are as follows:
June 26, June 27, June 28,
2003 2002 2001
-------- -------- --------
Federal statutory income tax rate 35.0% 35.0% 35.0%
State income taxes, net of
federal benefit 4.8 5.0 5.1
Surtax exemption -- (0.8) (0.8)
Nondeductible items -- 0.6 1.2
Other (0.8) (0.2) (0.5)
----- ----- -----
Effective tax rate 39.0% 39.6% 40.0%
===== ===== =====
34
The deferred tax assets and liabilities are comprised of the following:
June 26, 2003 June 27, 2002
------------------ ------------------
Asset Liability Asset Liability
------ --------- ------ ---------
Current:
Allowance for doubtful
accounts $ 236 $ -- $ 204 $ --
Employee compensation 754 -- 560 --
Inventory 47 -- -- 19
Accounts receivable -- -- -- --
Other 220 -- 116 --
------ ------ ------ ------
Total current $1,257 $ -- $ 880 $ 19
------ ------ ------ ------
Long-term:
Depreciation $ -- $5,054 $ -- $5,070
Capitalized leases 1,503 -- 1,524 --
Other 587 -- 600 --
------ ------ ------ ------
Total long-term $2,090 $5,054 $2,124 $5,070
------ ------ ------ ------
Total $3,347 $5,054 $3,004 $5,089
====== ====== ====== ======
NOTE 5 - INVENTORIES
- --------------------
Inventories consist of the following:
June 26, June 27,
2003 2002
-------- -------
Raw material and supplies $ 36,852 $45,229
Work-in-process and finished goods 75,164 54,256
-------- -------
Total $112,016 $99,485
======== =======
NOTE 6 - NOTES PAYABLE
- ----------------------
Notes payable consist of the following:
June 26, June 27,
2003 2002
-------- --------
Revolving bank loan $29,702 $23,519
======= =======
On March 31, 1998, the Company entered into a new unsecured credit
facility, with certain banks, totaling $70,000 (the "Bank Credit
Facility"). On May 30, 2003, the Bank Credit Facility was amended
to, among other things, increase the total amount available under the
facility to $80,000. The Bank Credit Facility, as amended, is
comprised of (i) a working capital revolving loan, which provides for
working capital financing of up to approximately $73,104, in the
aggregate, and matures on May 31, 2006, and (ii) a $6,896 standby
letter of credit, which matures on June 1, 2006. Borrowings under the
working capital revolving loan accrue interest at a rate (the
weighted average of which was 2.76% at June 26, 2003) determined
pursuant to a formula based on the agent bank's quoted rate and the
Eurodollar Interbank Rate. The standby letter of credit replaced a
prior letter of credit securing certain industrial development bonds
that financed the original acquisition, construction, and equipping
of the Company's Bainbridge, Georgia facility.
The Bank Credit Facility, as amended, includes certain restrictive
covenants that, among other things: (i) require the Company to
maintain a minimum tangible net worth; (ii) comply with specified
ratios; (iii) limit annual capital expenditures to $12,000; (iv)
restrict dividends to the lesser of 25% of net income for the
previous fiscal year or $5,000; (v) prohibit the Company from
redeeming shares of capital stock; and (vi) require that certain
officers and stockholders of the Company, together with their
respective family members and certain trusts created for the benefits
of their respective children, continue to own shares representing the
right to elect a majority of the directors of the Company. As of
June 26, 2003, the Company was in compliance with all restrictive
covenants, as amended, under the Bank Credit Facility.
35
NOTE 7 - LONG-TERM DEBT
- -----------------------
Long-term debt consists of the following:
June 26, June 27,
2003 2002
-------- --------
Industrial development bonds, secured by building,
machinery and equipment with a cost aggregating $8,000 $ 6,750 $ 7,000
Capitalized lease obligations 5,786 6,260
Series A note payable, interest payable quarterly
at 8.72%, principal payable in semi-annual
installments of $200 600 1,000
Series B note payable, interest payable quarterly
at 9.07%, principal payable in semi-annual
installments of $300 900 1,500
Series C note payable, interest payable quarterly
at 9.07%, principal payable in semi-annual
installments of $200 600 1,000
Series D note payable, interest payable quarterly
at 9.18%, principal payable in semi-annual
installments of $150 450 750
Series E note payable, interest payable quarterly
at 7.34%, principal payable in semi-annual
installments of $400 1,200 2,000
Series F notes payable, interest payable quarterly
at 9.16%, principal payable in semi-annual
installments of $475 2,850 3,800
Note payable, interest payable semi-annually
at 8.30%, principal payable in annual installments
of approximately $1,429
Note payable, subordinated, interest payable 4,286 5,714
semi-annually at 9.38%, principal payable in annual
installments of $5,000 beginning on September 1, 2003 15,000 15,000
Arlington Heights facility, first mortgage, principal
and interest payable at 8.875%, in monthly
installments of $22 through October 1, 2015 1,994 2,080
Current maturities (10,776) (5,683)
-------- -------
Total long-term debt $ 29,640 $40,421
======== =======
JBSS financed the construction of a peanut shelling plant with
industrial development bonds in 1987. On June 1, 1997, the Company
remarketed the bonds, resetting the interest rate at 5.375% through
May 2002, and at a market rate to be determined thereafter. On June
1, 2002, the Company remarketed the bonds, resetting the interest rate
at 4% through May 2006, and at a market rate to be determined
thereafter. On June 1, 2006, and on each subsequent interest reset
date for the bonds, the Company is required to redeem the bonds at
face value plus any accrued and unpaid interest, unless a bondholder
elects to retain his or her bonds. Any bonds redeemed by the Company
at the demand of a bondholder on the reset date are required to be
remarketed by the underwriter of the bonds on a "best efforts" basis.
The agreement requires the Company to redeem the bonds in varying
annual installments, ranging from $250 to $780 annually through 2017.
The Company is also required to redeem the bonds in certain other
circumstances, for example, within 180 days after any determination
that interest on the bonds is taxable. The Company has the option at
any time, however, subject to certain conditions, to redeem the bonds
at face value plus accrued interest, if any.
On September 29, 1992, the Company entered into a long-term financing
facility with a major insurance company (the "Long-Term Financing
Facility") which provided financing to the Company evidenced by
promissory notes in the aggregate principal amount of $14,000 (the
"Initial Financing"). The Initial Financing was comprised of (i) a
$4,000 7.87% Senior Secured Term Note due 2004 (the "Series A Note"),
(ii) a $6,000 8.22% Senior Secured Term Note due 2004 (the "Series B
Note"), and (iii) a $4,000 8.22% Senior Secured Term Note due 2004
(the "Series C Note"). In addition, the Long-Term Financing Facility
included a shelf facility providing for the issuance by the Company of
additional promissory notes with an aggregate original principal
amount of up to $11,000 (the "Shelf Facility"). On January 15, 1993,
the Company borrowed $3,000 under the Shelf Facility evidenced by an
8.33% Senior Secured Term Note due 2004 (the "Series D Note"). On
September 15, 1993, the Company borrowed the remaining $8,000
available under the Shelf Facility evidenced by a 6.49% Senior Secured
Term Note due 2004 (the "Series E Note").
36
On October 19, 1993, the Long-Term Financing Facility was amended to
provide for an additional shelf facility providing for the issuance by
the Company of additional promissory notes with an aggregate original
principal amount of $10,000 and to terminate and release all liens and
security interests in Company properties. On June 23, 1994, the
Company borrowed $10,000 under the additional shelf facility evidenced
by an $8,000 8.31% Series F Senior Note due May 15, 2006 (the "Series
F-1 Note") and a $2,000 8.31% Series F Senior Note due May 15, 2006
(the "Series F-2 Note").
Effective January 1, 1997, the interest rates on each promissory note
comprising the Long-Term Financing Facility were increased by 0.85%,
due to the Company not meeting the required ratio of (a) net income
plus interest expense to (b) senior funded debt for the year ended
December 31, 1996.
The Long-Term Financing Facility includes certain restrictive
covenants that, among other things: (i) require the Company to
maintain specified financial ratios; (ii) require the Company to
maintain a minimum tangible net worth; (iii) restrict dividends to a
maximum of 25% of cumulative net income from and after January 1, 1995
to the date the dividend is declared; and (iv) require that certain
officers and stockholders of the Company, together with their
respective family members and certain trusts created for the benefits
of their respective children, continue to own shares representing the
right to elect a majority of the directors of the Company. As of June
26, 2003, the Company was in compliance with all restrictive
covenants, as amended, under the Long-Term Financing Facility.
On September 12, 1995, the Company borrowed an additional $25,000
under an unsecured long-term financing arrangement (the "Additional
Long-Term Financing"). The Additional Long-Term Financing has a
maturity date of September 1, 2005 and (i) as to $10,000 of the
principal amount thereof, bears interest at an annual rate of 8.30%
and requires annual principal payments of approximately $1,429 through
maturity, and (ii) as to the other $15,000 of the principal amount
thereof (which is subordinated to the Company's other debt
facilities), bears interest at an annual rate of 9.38% and requires
annual principal payments of $5,000 beginning on September 1, 2003
through maturity.
The Additional Long-Term Financing includes certain restrictive
covenants that, among other things: (i) require the Company to
maintain specified financial ratios; (ii) require the Company to
maintain a minimum tangible net worth; and (iii) limit cumulative
dividends to the sum of (a) 50% of the Company's cumulative net income
(or minus 100% of a cumulative net loss) from and after January 1,
1995 to the date the dividend is declared, (b) the cumulative amount
of the net proceeds received by the Company during the same period
from any sale of its capital stock, and (c) $5,000. As of June 26,
20032, the Company was in compliance with all restrictive covenants,
as amended, under the Additional Long-Term Financing.
Aggregate maturities of long-term debt, excluding capitalized lease
obligations, are as follows for the years ending:
June 24, 2004 $10,243
June 30, 2005 9,027
June 29, 2006 13,676
June 28, 2007 123
June 26, 2008 135
Subsequent years 1,426
-------
Total $34,630
=======
The accompanying financial statements include the following amounts related
to assets under capital leases:
June 26, June 27,
2003 2002
-------- --------
Buildings $9,520 $9,520
Less: Accumulated amortization 7,444 7,032
------ ------
Total $2,076 $2,488
====== ======
As discussed in Note 1, these assets are being amortized over the terms
of the leases. Amortization expense aggregated $412 for the years ended
June 26, 2003 and June 27, 2002, and $411 for the year ended June 28, 2001.
37
Buildings under capital leases are rented from entities that are owned
by certain directors, officers and stockholders of JBSS. Future minimum
payments under the leases, together with the related present value, are
summarized as follows for the years ending:
June 24, 2004 $1,308
June 30, 2005 1,308
June 29, 2006 1,308
June 28, 2007 1,308
June 26, 2008 1,308
Subsequent years 2,578
------
Total minimum lease payments 9,118
Less: Amount representing interest 3,332
------
Present value of minimum lease payments $5,786
======
JBSS also leases buildings and certain equipment pursuant to agreements
accounted for as operating leases. Rent expense under these operating
leases aggregated $730, $598 and $724 for the years ended June 26, 2003,
June 27, 2002 and June 28, 2001, respectively. Aggregate noncancelable
lease commitments under these operating leases are as follows for the
years ending:
June 24, 2004 $1,252
June 30, 2005 1,355
June 29, 2006 1,000
June 28, 2007 214
June 26, 2008 133
Subsequent years 10
------
$3,964
======
NOTE 8 - EMPLOYEE BENEFIT PLANS
- -------------------------------
JBSS maintains a contributory plan established pursuant to the
provisions of section 401(k) of the Internal Revenue Code. The plan
provides retirement benefits for all nonunion employees meeting minimum
age and service requirements. The Company contributes 50% of the amount
contributed by each employee up to certain maximums specified in the
plan. Total Company contributions to the 401(k) plan were $535, $451
and $453 for the years ended June 26, 2003, June 27, 2002 and June 28,
2001, respectively.
JBSS contributed $99, $90 and $98 for the years ended June 26, 2003,
June 27, 2002 and June 28, 2001, respectively, to multi-employer
union-sponsored pension plans. JBSS is presently unable to determine
its respective share of either accumulated plan benefits or net assets
available for benefits under the union plans.
NOTE 9 - TRANSACTIONS WITH RELATED PARTIES
- ------------------------------------------
In addition to the related party transactions described in Note 7, JBSS
also entered into transactions with the following related parties:
Purchases
- ---------
JBSS purchases materials and manufacturing equipment from a company that
is 7.8% owned by the Company's Chairman of the Board and Chief Executive
Officer. The five children of the Company's Chairman of the Board and
Chief Executive Officer own the balance of the entity either directly or
as equal beneficiaries of a trust. Two of the children are officers of
38
the Company, and one of the two is also on the Company's Board of
Directors. Purchases aggregated $7,170, $6,491 and $5,512 for the years
ended June 26, 2003, June 27, 2002 and June 28, 2001, respectively.
Accounts payable aggregated $516 and $302 at June 26, 2003 and June 27,
2002, respectively. In addition, JBSS previously leased office and
warehouse space to the entity. Rental income from the entity aggregated
$79 and $154 for the years ended June 27, 2002 and June 28, 2001,
respectively. Accounts receivable aggregated $2 at June 27, 2002.
JBSS purchases materials from a company that is 33% owned by an
individual related to the Company's Chairman of the Board and Chief
Executive Officer. Material purchases aggregated $473, $402 and $228 for
the years ended June 26, 2003, June 27, 2002 and June 28, 2001,
respectively. Accounts payable aggregated $7 and $3 at June 26, 2003 and
June 27, 2002, respectively.
JBSS purchases supplies from a company that is 33% owned by an
individual related to the Company's Chairman of the Board and Chief
Executive Officer. Material purchases aggregated $472, $408 and $290 for
the years ended June 26, 2003, June 27, 2002 and June 28, 2001,
respectively. Accounts payable aggregated $27 and $32 at June 26, 2003
and June 27, 2002, respectively.
Product purchases and sales
- ---------------------------
JBSS previously purchased materials from and sells products to a company
that is owned 33% by the Company's Chairman of the Board and Chief
Executive Officer. Material purchases aggregated $526 and $408 for the
years ended June 27, 2002 and June 28, 2001, respectively. The Company
sold products to the same company aggregating $831and $1,414 for the
years ended June 27, 2002 and June 28, 2001, respectively. Accounts
receivable aggregated $3 at June 27, 2002.
Legal services
- --------------
A lawyer, who is related to an outside director of the Company, provides
services to JBSS. This lawyer was a partner in a firm that previously
provided services to JBSS. Legal services aggregated $24, $17 and $72
for the years ended June 26, 2003, June 27, 2002 and June 28, 2001,
respectively.
NOTE 10 - STOCK OPTION PLANS
- ----------------------------
The Company applies Accounting Principles Board Opinion No. 25 and
related Interpretations in accounting for its stock-based compensation
plans. Had compensation cost for the Company's stock-based compensation
plans been determined based on the fair value at the grant dates for
awards under the plans with the alternative method of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, the effect on the Company's net income for the years ended
June 26, 2003, June 27, 2002 and June 28, 2001 would not have been
significant.
In October 1991, JBSS adopted a stock option plan (the "1991 Stock
Option Plan") which became effective on December 10, 1991 and was
terminated early by the Board of Directors on February 28, 1995.
Pursuant to the terms of the 1991 Stock Option Plan, options to purchase
up to 350,000 shares of Common Stock could be awarded to certain
executives and key employees of JBSS and its subsidiaries. The exercise
price of the options was determined as set forth in the 1991 Stock
Option Plan by the Board of Directors. The exercise price for the stock
options was at least fair market value with the exception of
nonqualified stock options which had an exercise price equal to at least
33% of the fair market value of the Common Stock on the date of grant.
Except as set forth in the 1991 Stock Option Plan, options expire upon
termination of employment. All of the options granted were intended to
qualify as incentive stock options within the meaning of Section 422 of
the Internal Revenue Code (the "Code").
The termination of the 1991 Stock Option Plan, effective February 28,
1995, did not affect options granted under the 1991 Stock Option Plan
which remained outstanding as of the effective date of termination.
Accordingly, the unexercised options outstanding under the 1991 Stock
Option Plan at June 26, 2003 will continue to be governed by the terms
of the 1991 Stock Option Plan.
39
The following is a summary of activity under the 1991 Stock Option Plan:
Number of Weighted Average
Shares Exercise Price
--------- ----------------
Outstanding at June 29, 2000 61,300 $12.12
Canceled (6,400) $12.09
--------
Outstanding at June 28, 2001 154,900 $12.12
Exercised (550) $ 6.00
Canceled (110,000) $12.16
--------
Outstanding at June 27, 2002 44,350 $11.55
Exercised (33,650) $11.32
Canceled (5,500) $15.00
--------
Outstanding at June 26, 2003 5,200 $ 9.43
========
Options exercisable at June 26, 2003 5,200 $ 9.43
Options exercisable at June 27, 2002 44,350 $11.55
Options exercisable at June 28, 2001 154,900 $12.12
Exercise prices for options outstanding as of June 26, 2003 ranged from
$6.00 to $13.75. The weighted average remaining contractual life of
those options is 0.9 years. The options outstanding at June 26, 2003
may be segregated into two ranges, as is shown in the following:
Option Price Per Option Price Per
Share Share
$6.00 $13.75
---------------- ----------------
Number of options 2,900 2,300
Weighted-average exercise price $6.00 $13.75
Weighted-average remaining life (years) 1.5 0.1
Number of options exercisable 2,900 2,300
Weighted average exercise price for
exercisable options $6.00 $13.75
At the Company's annual meeting of stockholders on May 2, 1995, the
Company's stockholders approved, and the Company adopted, effective as of
March 1, 1995, a new stock option plan (the "1995 Equity Incentive Plan")
to replace the 1991 Stock Option Plan. The 1995 Equity Incentive Plan
was terminated early by the Board of Directors on August 27, 1998.
Pursuant to the terms of the 1995 Equity Incentive Plan, options to
purchase up to 200,000 shares of Common Stock could be awarded to certain
key employees and "outside directors" (i.e. directors who are not
employees of the Company or any of its subsidiaries). The exercise price
of the options was determined as set forth in the 1995 Equity Incentive
Plan by the Board of Directors. The exercise price for the stock options
was at least the fair market value of the Common Stock on the date of
grant, with the exception of nonqualified stock options which had an
exercise price equal to at least 50% of the fair market value of the
Common Stock on the date of grant. Except as set forth in the 1995
Equity Incentive Plan, options expire upon termination of employment or
directorship. The options granted under the 1995 Equity Incentive Plan
are exercisable 25% annually commencing on the first anniversary date of
grant and become fully exercisable on the fourth anniversary date of
grant. All of the options granted, except those granted to outside
directors, were intended to qualify as incentive stock options within the
meaning of Section 422 of the Code.
The termination of the 1995 Equity Incentive Plan, effective August 27,
1998, did not affect options granted under the 1995 Equity Incentive Plan
which remained outstanding as of the effective date of termination.
Accordingly, the unexercised options outstanding under the 1995 Equity
40
Incentive Plan at June 26, 2003 will continue to be governed by the terms
of the 1995 Equity Incentive Plan.
The following is a summary of activity under the 1995 Equity Incentive
Plan:
Number of Weighted Average
Shares Exercise Price
--------- ----------------
Outstanding at June 29, 2000 124,200 $7.75
Canceled (16,600) $9.04
-------
Outstanding at June 28, 2001 107,600 $7.58
Exercised (600) $6.25
Canceled (20,700) $7.51
-------
Outstanding at June 27, 2002 86,300 $7.61
Exercised (57,200) $7.41
Canceled (7,000) $8.48
-------
Outstanding at June 26, 2003 22,100 $7.86
=======
Options exercisable at June 26, 2003 22,100 $7.86
Options exercisable at June 27, 2002 86,300 $7.61
Options exercisable at June 28, 2001 107,600 $7.58
Exercise prices for options outstanding as of June 26, 2003 ranged from
$6.00 to $10.50. The weighted average remaining contractual life of
those options is 3.0 years. The options outstanding at June 26, 2003
may be segregated into two ranges, as is shown in the following:
Option Price Per Option Price Per
Share Range Share Range
$6.00-$6.63 $9.38-$10.50
---------------- ----------------
Number of options 11,100 11,000
Weighted-average exercise price $6.26 $9.48
Weighted-average remaining
life (years) 3.8 2.2
Number of options exercisable 11,100 11,000
Weighted average exercise price
for exercisable options $6.26 $9.48
At the Company's annual meeting of stockholders on October 28, 1998, the
Company's stockholders approved, and the Company adopted, effective as
of September 1, 1998, a new stock option plan (the 1998 Equity Incentive
Plan") to replace the 1995 Equity Incentive Plan. Pursuant to the terms
of the 1998 Equity Incentive Plan, options to purchase up to 700,000
shares of Common Stock could be awarded to certain key employees and
"outside directors" (i.e. directors who are not employees of the Company
or any of its subsidiaries). The exercise price of the options will be
determined as set forth in the 1998 Equity Incentive Plan by the Board
of Directors. The exercise price for the stock options must be at least
the fair market value of the Common Stock on the date of grant, with the
exception of nonqualified stock options which have an exercise price
equal to at least 50% of the fair market value of the Common Stock on
the date of grant. Except as set forth in the 1998 Equity Incentive
Plan options expire upon termination of employment or directorship. The
options granted under the 1998 Equity Incentive Plan are exercisable 25%
annually commencing on the first anniversary date of grant and become
fully exercisable on the fourth anniversary date of grant. All of the
options granted, except those granted to outside directors, were
intended to qualify as incentive stock options within the meaning of
Section 422 of the Code.
41
The following is a summary of activity under the 1998 Equity Incentive
Plan:
Number of Weighted Average
Shares Exercise Price
---------
Outstanding at June 29, 2000 195,500 $4.38
Granted 3,000 $4.06
Canceled (28,750) $4.35
-------
Outstanding at June 28, 2001 169,750 $4.38
Granted 8,000 $5.68
Exercised (3,750) $4.50
Canceled (10,000) $4.33
-------
Outstanding at June 27, 2002 164,000 $4.35
Granted 144,500 $7.08
Exercised (82,975) $4.33
Canceled (1,250) $4.50
-------
Outstanding at June 26, 2003 224,275 $6.11
=======
Options exercisable at June 26, 2003 42,775 $4.36
Options exercisable at June 27, 2002 84,125 $4.34
Options exercisable at June 28, 2001 50,750 $4.31
Exercise prices for options outstanding as of June 26, 2003 ranged from
$3.44 to $17.51. The weighted average remaining contractual life of
those options is 8.3 years. The options outstanding at June 26, 2003
may be segregated into two ranges, as is shown in the following:
Option Price Per Option Price Per
Share Range Share
$3.44-$7.80 $17.51
---------------- ----------------
Number of options 222,775 1,500
Weighted-average exercise price $6.03 $17.51
Weighted-average remaining 8.3 10.0
life (years)
Number of options exercisable 42,775 --
Weighted average exercise price
for exercisable options $4.36 --
NOTE 11 - COMMITMENTS AND CONTINGENCIES
- ---------------------------------------
The Company is party to various lawsuits, proceedings and other matters
arising out of the conduct of its business. It is management's opinion
that the ultimate resolution of these matters will not have a material
adverse effect upon the business, financial condition or results of
operations of the Company.
42
Supplementary Quarterly Data
- ----------------------------
The following unaudited quarterly consolidated financial data are presented
for fiscal 2003 and fiscal 2002. Quarterly financial results necessarily
rely on estimates and caution is required in drawing specific conclusions
from quarterly consolidated results.
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- -------- ------- -------
Year Ended June 26, 2003:
Net sales $93,069 $134,236 $84,284 $96,945
Gross profit 11,042 22,558 13,072 14,821
Income from operations 3,818 14,483 3,652 6,876
Net income 1,678 8,243 1,573 3,533
Basic earnings per common share $ 0.18 $ 0.90 $ 0.17 $ 0.38
Diluted earnings per common share $ 0.18 $ 0.89 $ 0.17 $ 0.37
Year Ended June 27, 2002:
Net sales $84,759 $112,755 $67,114 $78,617
Gross profit 11,192 17,331 8,633 11,158
Income from operations 3,284 9,205 1,732 3,681
Net income 1,079 4,773 268 1,571
Basic and diluted earnings
per common share $ 0.12 $ 0.52 $ 0.03 $ 0.17
43
Item 9 -- Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
- -------------------------------------------------------------------------
There were no disagreements on any matters of accounting principles or
financial statement disclosure with the Company's independent accountants
during the year ended June 26, 2003, the year ended June 27, 2002 or the
year ended June 28, 2001.
Item 9A -- Controls and Procedures
- ----------------------------------
As of the end of the period covered by this Annual Report on Form 10-K,
the Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Company's
Chairman and Chief Executive Officer along with the Company's Chief
Financial Officer, of the effectiveness of the design and operation of
the Company's disclosure controls and procedures pursuant to Exchange Act
Rule 13a-15(b). Based upon that evaluation, the Company's Chairman and
Chief Executive Officer along with the Company's Chief Financial Officer
concluded that the Company's disclosure controls and procedures are
effective in timely alerting them to material information relating to the
Company required to be included in the Company's periodic SEC filings.
There has been no change in the Company's internal control over financial
reporting during the Company's fourth fiscal quarter that has materially
affected, or is reasonably likely to materially affect the Company's
internal control over financial reporting.
PART III
--------
Item 10 -- Directors and Executive Officers of the Registrant
- -------------------------------------------------------------
The Sections entitled "Nominees for Election by The Holders of Common
Stock" and "Nominees for Election by The Holders of Class A Stock" of the
Company's Proxy Statement for the 2003 Annual Meeting and filed pursuant to
Regulation 14A are incorporated herein by reference. Information relating
to the executive officers of the Company is included immediately after Part
I of this Report.
Item 11 -- Executive Compensation
- ---------------------------------
The Sections entitled "Compensation of Directors and Executive Officers",
"Committees and Meetings of the Board of Directors" and "Compensation
Committee Interlocks, Insider Participation and Certain Transactions" of
the Company's Proxy Statement for the 2003 Annual Meeting are incorporated
herein by reference.
Item 12 -- Security Ownership of Certain Beneficial Owners and Management
- -------------------------------------------------------------------------
The Section entitled "Security Ownership of Certain Beneficial Owners and
Management" of the Company's Proxy Statement for the 2003 Annual Meeting is
incorporated herein by reference.
Item 13 -- Certain Relationships and Related Transactions
- ---------------------------------------------------------
The Sections entitled "Executive Compensation" and "Compensation Committee
Interlocks, Insider Participation and Certain Transactions" of the
Company's Proxy Statement for the 2003 Annual Meeting are incorporated
herein by reference.
Item 14 -- Principal Accountant Fees and Services
- -------------------------------------------------
This item is first effective for annual reports for fiscal years ending
after December 15, 2003, and therefore is not included in this filing.
44
PART IV
-------
Item 15 -- Exhibits, Financial Statement Schedules and Reports on Form 8-K
- --------------------------------------------------------------------------
(a)(1) Financial Statements
- ------------------------------
The following financial statements of the Company are included in
Part II, Item 8 of this Report:
Report of Independent Accountants
Consolidated Statements of Operations for the Year Ended June 26, 2003,
the Year Ended June 27, 2002 and the Year Ended June 28, 2001
Consolidated Balance Sheets as of June 26, 2003 and June 27, 2002
Consolidated Statements of Stockholders' Equity for the Year Ended June
26, 2003, the Year Ended June 27, 2002 and the Year Ended June 28, 2001
Consolidated Statements of Cash Flows for the Year Ended June 26, 2003,
the Year Ended June 27, 2002 and the Year Ended June 28, 2001
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
-----------------------------------
The following information included in this Report is filed as a part hereof:
Report of Independent Accountants on Financial Statement Schedule
Schedule II -- Valuation and Qualifying Accounts and Reserves
All other schedules are omitted because they are not applicable or the
required information is shown in the Consolidated Financial Statements or
Notes thereto.
(3) Exhibits
--------------
The exhibits required by Item 601 of Regulation S-K and filed herewith are
listed in the Exhibit Index which follows the signature page and
immediately precedes the exhibits filed.
(b) Reports on Form 8-K
- -------------------------
On April 29, 2003, the Company filed a Current Report on Form 8-K, dated
April 23, 2003, announcing quarterly financial results.
(c) Exhibits
- --------------
See Item 15(a)(3) above.
(d) Financial Statement Schedules
- -----------------------------------
See Item 15(a)(2) above.
45
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: September 15, 2003 JOHN B. SANFILIPPO & SON, INC.
------------------------------
By: /s/ Jasper B. Sanfilippo
------------------------
Jasper B. Sanfilippo
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
Name Title Date
- ------------------------- --------------------------------- -----------------
/s/ Jasper B. Sanfilippo Chairman of the Board and Chief September 15, 2003
- ------------------------ Executive Officer and Director
Jasper B. Sanfilippo (Principal Executive Officer)
/s/ Michael J. Valentine Executive Vice President Finance, September 15, 2003
- ------------------------ Chief Financial Officer and
Michael J. Valentine Secretary and Director
(Principal Financial Officer)
/s/ William R. Pokrajac Vice President of Finance September 15, 2003
- ----------------------- (Principal Accounting Officer)
William R. Pokrajac
/s/ Mathias A. Valentine Director September 15, 2003
- ------------------------
Mathias A. Valentine
/s/ Jim Edgar Director September 15, 2003
- -------------
Jim Edgar
/s/ John W.A. Buyers Director September 15, 2003
- --------------------
John W.A. Buyers
/s/ Timothy R. Donovan Director September 15, 2003
- ----------------------
Timothy R. Donovan
/s/ Jeffrey T. Sanfilippo Director September 15, 2003
- -------------------------
Jeffrey T. Sanfilippo
46
Report of Independent Auditors on
Financial Statement Schedule
---------------------------------
To the Board of Directors and Stockholders
of John B. Sanfilippo & Son, Inc.:
Our audits of the consolidated financial statements of John
B. Sanfilippo & Son, Inc. referred to in our report dated
August 18, 2003 appearing on page 24 of this 2003 Annual
Report on Form 10-K also included an audit of the Financial
Statement Schedule listed in Item 15(a)(2). In our opinion,
the Financial Statement Schedule presents fairly, in all
material respects, the information set forth therein when
read in conjunction with the related consolidated financial
statements.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Chicago, Illinois
August 18, 2003
47
JOHN B. SANFILIPPO & SON, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the year ended June 26, 2003, the year ended
June 27, 2002 and the year ended June 28, 2001
(Dollars in thousands)
Balance at
Beginning Balance at
Description of Period Additions Deductions End of Period
- ------------------------------- ---------- --------- ---------- -------------
June 26, 2003
- -------------
Allowance for doubtful accounts $ 511 $ 314 $ (234) $ 591
Reserve for cash discounts 109 4,516 (4,485) 140
Reserve for customer deductions 786 7,355 (7,320) 821
------ ------- --------- ------
Total $1,406 $12,185 $(12,039) $1,552
====== ======= ========= ======
June 27, 2002
- -------------
Allowance for doubtful accounts $ 390 $ 155 $ (34) $ 511
Reserve for cash discounts 109 3,928 (3,928) 109
Reserve for customer deductions 894 5,169 (5,277) 786
------ ------- --------- ------
Total $1,393 $ 9,252 $ (9,239) $1,406
====== ======= ========= ======
June 28, 2001
- -------------
Allowance for doubtful accounts $ 769 $ 13 $ (392) $ 390
Reserve for cash discounts 109 3,610 (3,610) 109
Reserve for customer deductions 2,299 3,959 (5,364) 894
------ ------- --------- ------
Total $3,177 $ 7,582 $ (9,366) $1,393
====== ======= ========= ======
48
JOHN B. SANFILIPPO & SON, INC.
EXHIBIT INDEX
(Pursuant to Item 601 of Regulation S-K)
Exhibit
Number Description
- ------- ----------------------------------------------------------------
1 Not applicable
2 Not applicable
3.1 Restated Certificate of Incorporation of Registrant(2)
3.2 Certificate of Correction to Restated Certificate(2)
3.3 Bylaws of Registrant(1)
4.1 Specimen Common Stock Certificate(3)
4.2 Specimen Class A Common Stock Certificate(3)
4.3 Second Amended and Restated Note Agreement by and between the
Registrant and The Prudential Insurance Company of America
("Prudential") dated January 24, 1997 (the "Long-Term Financing
Facility")(17)
4.4 7.87% Series A Senior Note dated September 29, 1992 in the
original principal amount of $4.0 million due August 15, 2004
executed by the Registrant in favor of Prudential(5)
4.5 8.22% Series B Senior Note dated September 29, 1992 in the
original principal amount of $6.0 million due August 15, 2004
executed by the Registrant in favor of Prudential(5)
4.6 8.22% Series C Senior Note dated September 29, 1992 in the
original principal amount of $4.0 million due August 15, 2004
executed by the Registrant in favor of Prudential(5)
4.7 8.33% Series D Senior Note dated January 15, 1993 in the original
principal amount of $3.0 million due August 15, 2004 executed by
the Registrant in favor of Prudential(6)
4.8 6.49% Series E Senior Note dated September 15, 1993 in the
original principal amount of $8.0 million due August 15, 2004
executed by the Registrant in favor of Prudential(9)
4.9 8.31% Series F Senior Note dated June 23, 1994 in the original
principal amount of $8.0 million due May 15, 2006 executed by the
Registrant in favor of Prudential(10)
4.10 8.31% Series F Senior Note dated June 23, 1994 in the original
principal amount of $2.0 million due May 15, 2006 executed by the
Registrant in favor of Prudential(10)
4.11 Amended and Restated Guaranty Agreement dated as of October 19,
1993 by Sunshine in favor of Prudential(8)
4.12 Amendment to the Second Amended and Restated Note Agreement dated
May 21, 1997 by and among Prudential, Sunshine and the
Registrant(18)
4.13 Amendment to the Second Amended and Restated Note Agreement dated
March 31, 1998 by and among Prudential, the Registrant, Sunshine,
and Quantz Acquisition Co., Inc. ("Quantz")(19)
4.14 Guaranty Agreement dated as of March 31, 1998 by JBS International,
Inc. ("JBSI") in favor of Prudential(19)
4.15 Amendment and Waiver to the Second Amended and Restated Note
Agreement dated February 5, 1999 by and among Prudential, the
Registrant, Sunshine, JBSI and Quantz(22)
4.16 Amendment to the Second Amended and Restated Note Agreement dated
May 30, 2003 by and among Prudential, the Registrant and JBSI,
filed herewith
49
4.17 Guaranty Agreement dated as of May 30, 2003 by JBSI in favor of
Prudential, filed herewith
4.18 Note Purchase Agreement dated as of August 30, 1995 between the
Registrant and Teachers Insurance and Annuity Association of
America ("Teachers")(14)
4.19 8.30% Senior Note due 2005 in the original principal amount of
$10.0 million, dated September 12, 1995 and executed by the
Registrant in favor of Teachers(14)
4.20 9.38% Senior Subordinated Note due 2005 in the original principal
amount of $15.0 million, dated September 12, 1995 and executed by
the Registrant in favor of Teachers(14)
4.21 Guaranty Agreement dated as of August 30, 1995 by Sunshine in
favor of Teachers (Senior Notes)(14)
4.22 Guaranty Agreement dated as of August 30, 1995 by Sunshine in
favor of Teachers (Senior Subordinated Notes)(14)
4.23 Amendment, Consent and Waiver, dated as of March 27, 1996, by and
among Teachers, Sunshine and the Registrant(16)
4.24 Amendment No. 2 to Note Purchase Agreement dated as of January
24, 1997 by and among Teachers, Sunshine and the Registrant(17)
4.25 Amendment to Note Purchase Agreement dated May 19, 1997 by and
among Teachers, Sunshine and the Registrant(19)
4.26 Amendment No. 3 to Note Purchase Agreement dated as of March 31,
1998 by and among Teachers, Sunshine, Quantz and the Registrant(19)
4.27 Guaranty Agreement dated as of March 31, 1998 by JBSI in favor of
Teachers (Senior Notes)(19)
4.28 Guaranty Agreement dated as of March 31, 1998 by JBSI in favor of
Teachers (Senior Subordinated Notes)(19)
4.29 Amendment and Waiver to Note Purchase Agreement dated February 5,
1999 by and among Teachers, Sunshine, Quantz, JBSI and the
Registrant(22)
4.30 Amendment and waiver to Note Purchase Agreement dated October 26,
1999 between Teachers and the Registrant(23)
5-9 Not applicable
10.1 Certain documents relating to $8.0 million Decatur County-
Bainbridge Industrial Development Authority Industrial Development
Revenue Bonds (John B. Sanfilippo & Son, Inc. Project) Series
1987 dated as of June 1, 1987(1)
10.2 Industrial Building Lease (the "Touhy Avenue Lease") dated
November 1, 1985 between the Registrant and LNB, as Trustee under
Trust Agreement dated September 20, 1966 and known as Trust
No. 34837(11)
10.3 First Amendment to the Touhy Avenue Lease dated June 1, 1987(11)
10.4 Second Amendment to the Touhy Avenue Lease dated December 14,
1990(11)
10.5 Third Amendment to the Touhy Avenue Lease dated September
1, 1991(15)
10.6 Mortgage, Assignment of Rents and Security Agreement made on
September 29, 1992 by LaSalle Trust, not personally but as
Successor Trustee under Trust Agreement dated February 7, 1979
and known as Trust Number 100628 in favor of the Registrant
relating to the properties commonly known as 2299 Busse Road and
1717 Arthur Avenue, Elk Grove Village, Illinois(5)
10.7 Industrial Building Lease dated June 1, 1985 between Registrant
and LNB, as Trustee under Trust Agreement dated February 7, 1979
and known as Trust No. 100628(1)
50
10.8 First Amendment to Industrial Building Lease dated September 29,
1992 by and between the Registrant and LaSalle Trust, not
personally but as Successor Trustee under Trust Agreement dated
February 7, 1979 and known as Trust Number 100628(5)
10.9 Second Amendment to Industrial Building Lease dated March 3, 1995
by and between the Registrant and LaSalle Trust, not personally
but as Successor Trustee under Trust Agreement dated February 7,
1979 and known as Trust Number 100628(12)
10.10 Third Amendment to Industrial Building Lease dated August 15,
1998 by and between the Registrant and LaSalle Trust, not
personally but as Successor Trustee under Trust Agreement dated
February 7, 1979 and known as Trust Number 100628(20)
10.11 Ground Lease dated January 1, 1995 between the Registrant and
LaSalle Trust, not personally but as Successor Trustee under Trust
Agreement dated February 7, 1979 and known as Trust
Number 100628(12)
10.12 Party Wall Agreement, dated March 3, 1995 between the Registrant,
LaSalle Trust, not personally but as Successor Trustee under Trust
Agreement dated February 7, 1979 and known as Trust Number 100628,
and the Arthur/Busse Limited Partnership(12)
10.13 Tax Indemnification Agreement between Registrant and certain
Stockholders of Registrant prior to its initial public offering(2)
*10.14 Indemnification Agreement between Registrant and certain
Stockholders of Registrant prior to its initial public offering(2)
*10.15 The Registrant's 1991 Stock Option Plan(1)
*10.16 First Amendment to the Registrant's 1991 Stock Option Plan(4)
*10.17 John B. Sanfilippo & Son, Inc. Split-Dollar Insurance Agreement
Number One among John E. Sanfilippo, as trustee of the Jasper and
Marian Sanfilippo Irrevocable Trust, dated September 23, 1990,
Jasper B. Sanfilippo, Marian R. Sanfilippo and Registrant, and
Collateral Assignment from John E. Sanfilippo as trustee of the
Jasper and Marian Sanfilippo Irrevocable Trust, dated September
23, 1990, as assignor, to Registrant, as assignee(7)
*10.18 John B. Sanfilippo & Son, Inc. Split-Dollar Insurance Agreement
Number Two among Michael J. Valentine, as trustee of the Valentine
Life Insurance Trust, dated May 15, 1991, Mathias Valentine, Mary
Valentine and Registrant, and Collateral Assignment from Michael
J. Valentine, as trustee of the Valentine Life Insurance Trust,
dated May 15, 1991, as assignor, and Registrant, as assignee(7)
10.19 Outsource Agreement between the Registrant and Preferred
Products, Inc. dated January 19, 1995 [CONFIDENTIAL TREATMENT
REQUESTED](12)
10.20 Letter Agreement between the Registrant and Preferred Products,
Inc. dated February 24, 1995, amending the Outsource Agreement
dated January 19, 1994 [CONFIDENTIAL TREATMENT REQUESTED](12)
*10.21 The Registrant's 1995 Equity Incentive Plan(13)
10.22 Promissory Note (the "ILIC Promissory Note") in the original
principal amount of $2.5 million, dated September 27, 1995 and
executed by the Registrant in favor of Indianapolis Life
Insurance Company ("ILIC")(15)
10.23 First Mortgage and Security Agreement (the "ILIC Mortgage") by
and between the Registrant, as mortgagor, and ILIC, as mortgagee,
dated September 27, 1995, and securing the ILIC Promissory Note
and relating to the property commonly known as 3001 Malmo Drive,
Arlington Heights, Illinois(15)
51
10.24 Assignment of Rents, Leases, Income and Profits dated September
27, 1995, executed by the Registrant in favor of ILIC and
relating to the ILIC Promissory Note, the ILIC Mortgage and the
Arlington Heights facility(15)
10.25 Environmental Risk Agreement dated September 27, 1995, executed
by the Registrant in favor of ILIC and relating to the ILIC
Promissory Note, the ILIC Mortgage and the Arlington Heights
facility(15)
10.26 Credit Agreement dated as of March 31, 1998 among the Registrant,
Sunshine, Quantz, JBSI, U.S. Bancorp Ag Credit, Inc. ("USB") as
Agent, Keybank National Association ("KNA"), and LNB(19)
*10.27 The Registrant's 1998 Equity Incentive Plan(22)
*10.28 First Amendment to the Registrant's 1998 Equity Incentive Plan(25)
10.29 Second Amendment to Credit Agreement dated May 10, 2000 by and
among the Registrant, JBSI, USB as Agent, LNB and SunTrust Bank,
N.A.("STB") (replacing KNA)(24)
10.30 Third Amendment to Credit Agreement dated May 20, 2002 by and
among the Registrant, JBSI, USB as Agent, LNB and STB)(26)
10.31 Fourth Amendment to Credit Agreement dated May 30, 2003 by and
among the Registrant, JBSI, USB as Agent, LNB and STB, filed
herewith
10.32 Revolving Credit Note in the principal amount of $40.0 million
executed by the Registrant and JBSI in favor of USB, dated as of
May 30, 2003, filed herewith
10.33 Revolving Credit Note in the principal amount of approximately
$22.9 million executed by the Registrant and JBSI in favor of STB,
dated as of May 30, 2003, filed herewith
10.34 Revolving Credit Note in the principal amount of approximately
$17.1 million executed by the Registrant and JBSI in favor of LSB,
dated as of May 30, 2003, filed herewith
10.35 Industrial Building Lease between the Registrant and Cabot
Acquisition, LLC dated April 18, 2003, filed herewith
11-20 Not applicable
21 Subsidiaries of the Registrant, filed herewith
22 Not applicable
23 Consent of PricewaterhouseCoopers LLP, filed herewith
24-31 Not applicable
31.1 Certification of Jasper B. Sanfilippo pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002, as amended, filed herewith
31.2 Certification of Michael J. Valentine pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002, as amended, filed herewith
32.1 Certification of Jasper B. Sanfilippo pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, filed herewith
32.2 Certification of Michael J. Valentine pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, filed herewith
33-99 Not applicable
52
(1) Incorporated by reference to the Registrant's Registration
Statement on Form S-1, Registration No. 33-43353, as filed
with the Commission on October 15, 1991 (Commission File
No. 0-19681).
(2) Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1991
(Commission File No. 0-19681).
(3) Incorporated by reference to the Registrant's Registration
Statement on Form S-1 (Amendment No. 3), Registration No.
33-43353, as filed with the Commission on November 25, 1991
(Commission File No. 0-19681).
(4) Incorporated by reference to the Registrant's Quarterly Report
on Form 10-Q for the second quarter ended June 25, 1992
(Commission File No. 0-19681).
(5) Incorporated by reference to the Registrant's Current Report
on Form 8-K dated September 29, 1992 (Commission File
No. 0-19681).
(6) Incorporated by reference to the Registrant's Current Report
on Form 8-K dated January 15, 1993 (Commission File No. 0-19681).
(7) Incorporated by reference to the Registrant's Registration
Statement on Form S-1, Registration No. 33-59366, as filed
with the Commission on March 11, 1993 (Commission File
No. 0-19681).
(8) Incorporated by reference to the Registrant's Quarterly Report
on Form 10-Q for the third quarter ended September 30, 1993
(Commission File No. 0-19681).
(9) Incorporated by reference to the Registrant's Current Report
on Form 8-K dated September 15, 1993 (Commission File No. 0-19681).
(10) Incorporated by reference to the Registrant's Current Report
and Form 8-K dated June 23, 1994 (Commission File No. 0-19681).
(11) Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993
(Commission File No. 0-19681).
(12) Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994
(Commission File No. 0-19681).
(13) Incorporated by reference to the Registrant's Quarterly Report
on Form 10-Q for the first quarter ended March 30, 1995
(Commission File No. 0-19681).
(14) Incorporated by reference to the Registrant's Current Report
on Form 8-K dated September 12, 1995 (Commission File
No. 0-19681).
(15) Incorporated by reference to the Registrant's Quarterly Report
on Form 10-Q for the third quarter ended September 28, 1995
(Commission File No. 0-19681).
(16) Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995
(Commission File No. 0-19681).
(17) Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996
(Commission File No. 0-19681).
(18) Incorporated by reference to the Registrant's Current Report on
Form 8-K dated May 21, 1997 (Commission file No. 0-19681).
53
(19) Incorporated by reference to the Registrant's Quarterly
Report on Form 10-Q for the third quarter ended March 26, 1998
(Commission File No. 0-19681).
(20) Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the fiscal year ended June 25, 1998 (Commission
File No. 0-19681).
(21) Incorporated by reference to the Registrant's Quarterly Report
on Form 10-Q for the first quarter ended September 24, 1998
(Commission File No. 0-19681).
(22) Incorporated by reference to the Registrant's Quarterly Report
on Form 10-Q for the second quarter ended December 24, 1998
(Commission File No. 0-19681).
(23) Incorporated by reference to the Registrant's Quarterly Report
on Form 10-Q for the first quarter ended September 23, 1999
(Commission File No. 0-19681).
(24) Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the fiscal year ended June 29, 2000
(Commission File No. 0-19681).
(25) Incorporated by reference to the Registrant's Quarterly Report
on Form 10-Q for the second quarter ended December 28, 2000
(Commission File No. 0-19681).
(26) Incorporated by reference to the Registrant's Annual Report
on Form 10-K for the fiscal year ended June 27, 2002
(Commission File No. 0-19681).
* Indicates a management contract or compensatory plan or arrangement
required to be filed as an exhibit to this form pursuant to
Item 14(c).